Chapter 1R, Problem 16MCQ

To determine

The question requires us to draw the production possibilities curve for an economy which has no specialization in producing milk and cream.

Explanation of Solution

The production possibility curve (PPC) represents the trade-offs between the combination of two goods that can be produced by utilizing the available resources in an economy (or firm).

The production possibility model with bowed-out and bowed-in downward sloping curve for a firm indicates that the firm is producing the combinations of two goods, and such PPC will have different opportunity costs at different points on the curve while the PPC with constant opportunity cost will be straight and downward sloping. Such PPC represents the economy that has no specialization of resources.

So, option “b” is correct.