You have just seen the production possibilities for your new store. Use this information to write two to three sentences explain
ing which item is better for you to produce and why.
2 answers:
The Production Possibilities Frontier (PPF) is a curve that shows all the combinations of two goods that an economy or a firm are able to produce given a certain endownment of factors of production. The points in the curve show all the efficient production combinations, as there are no unused resources and, in order to produce a larger quantity of one of the goods, a certain amount of the other needs to be given up.
Assume that the PPF attached is the one corresponding to my new store, where I can produce either guns or butter. Any bundle located along the curve (for example, the combinations B, D or C) represents efficent amounts of production of the two goods, and therefore any of them are recomendable production strategies that can be followed. Those are efficient combinations because the whole endowment of resources is used. In opposition, point A is inefficient because there are unused resources in the firm/economy, and point X is impossible, because there are not enough resources in the economy to generate those levels of output.
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