MC Qu. 50 Use the following production possibilities...

Use the following production possibilities frontiers to answer the next question.

The horizontal axis is labeled capital goods and the vertical axis is labeled consumer goods. Two decreasing curves are drawn from the same point at the vertical axis. First curve closer to the origin has to points marked as N and P. The region between the origin and the first curve is labeled a and the region beyond the second curve is labeled b. A point marked as L is plotted in the region b.

Curve (a) is the initial frontier for the economy. If the economy’s production possibilities then shift to curve (b), then point

Question

MC Qu. 50 Use the following production possibilities...

Use the following production possibilities frontiers to answer the next question.

The horizontal axis is labeled capital goods and the vertical axis is labeled consumer goods. Two decreasing curves are drawn from the same point at the vertical axis. First curve closer to the origin has to points marked as N and P. The region between the origin and the first curve is labeled a and the region beyond the second curve is labeled b. A point marked as L is plotted in the region b.

Curve (a) is the initial frontier for the economy. If the economy’s production possibilities then shift to curve (b), then point

BlackTom AI · Accepted Answer

The question provides two production possibility frontiers (a and b) with capital goods on the horizontal axis and consumer goods on the vertical axis. Region a lies between the origin and frontier (a), while region b lies beyond frontier (b). A point L is plotted in region b, and a point N or P is plotted somewhere inside frontier (a). The scenario states that the economy’s production possibilities shift from frontier (a) to frontier (b).

Option 1: N would indicate some unemployment or underemployment of resources. Since N is located inside the initial frontier (a), it represents a point where not all resources are fully utilized given frontier (a). After the shift to frontier (b), the new frontier lies further out, expanding the attainable production set. Any interior point relative to the new frontier (b) would still indicate underemployment, inefficiency, or unused resources because it is not on the new outer boundary. Therefore, this option is plausible: N could indicate unemployment or underutilization under the new, larger possibility set.

Option 2: L would indicate some unemployment or underemployment of resources. L is located in region b, which is beyond frontier (b) and thus outside the attainable set for the economy when its possibilities are described by frontier (b). If the frontier shifts outward to (b), L would no longer be attainable; it would not indicate unemployment, but rather an unattainable level of production. In other words, L would not be a point of unemployment within the new frontier, but a point outside the maximum feasible production. This makes the statement incorrect in the context of the shifted frontier.

Option 3: N would still indicate a case of full production and full employment of resources. Full production and full employment correspond to points on the production possibilities frontier, i.e., on frontier (a) before the shift. Since N lies inside frontier (a) rather than on it, it does not represent full production and full employment even before the shift. After shifting to frontier (b), N remains interior to the new frontier and would still not represent full utilization of resources. Therefore, this claim is not accurate.

Option 4: L would still indicate a case of full production and full employment of resources. As noted, L lies in region b, which corresponds to being outside frontier (b) and thus unattainable under the new possibility set. Only points on frontier (b) or inside it (with efficiency on the boundary) could represent full production and full employment. Since L is beyond the frontier, this statement is false.

In summary, the key ideas hinge on understanding that interior points relative to the new frontier signal underutilization or inefficiency, while points on the frontier indicate full employment of resources. Points outside the frontier during a given period are unattainable, even if the frontier later shifts outward. Note that the precise interpretation depends on where N, P, and L lie in relation to the original and new frontiers, and the logic above applies to the described locations: interior points become interior relative to the larger frontier, and exterior points remain unattainable unless the frontier expands to include them.

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