Question

Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce​ 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety.​ Similarly, using all its resources in the production of liquor​ chocolates, the firm can produce​ 8,000 bars per month.​ However, during a given​ month, the firm produces both varieties.Which of the following, if true, would suggest that the firm is operating on its PPF?a. Most domestic consumers prefer the better quality Swiss chocolates imported by the country. b. The opportunity cost of shifting resources from the production of liquor chocolates to dark chocolates is marginal. c. Medical reports earlier this year indicated that higher chocolate consumption increases the risk of heart attack. d. Even though the demand for both liquor and dark chocolates has increased, the company can increase the production of only one variety. e. In an attempt to cut costs, the company is planning to fire its unproductive resources.

Answer 1

Answer:

The correct answer is option d.

Explanation:

Choco Fantasy firm produces dark chocolates and liquor chocolates. If the firm is operating on its production possibility frontier it can increase the production of one good at a time. This is because of the scarcity of resources.

Resources are limited, so if we want to increase the production of one good we need to decrease the production of the other. That is why the shape of the frontier is downward sloping.

So even if the demand for both the goods has increased, the company can increase the production of only one of them.