Figure: Guns and Butter Guns (per period) 18 16 12 8 4 0 A Reference: Ref 2-2 4 8 B 12 Production possibility frontier E F H 16 18 20 Butter (per period) (Figure: Guns and Butter) Look at the figure Guns and Butter. Suppose the economy produced 8 guns and 12 pounds of butter per period. O This is a possible choice but is inefficient. This combination invalidates the notion of increasing opportunity cost. The economy is still efficient but does not buy as much as it could. Something must be done to reduce the amount of employment.

Figure: Guns and Butter Guns (per period) 18 16 12 8 4 0 A Reference: Ref 2-2 4 8 B 12 Production possibility frontier E F H 16 18 20 Butter (per period) (Figure: Guns and Butter) Look at the figure Guns and Butter. Suppose the economy produced 8 guns and 12 pounds of butter per period. O This is a possible choice but is inefficient. This combination invalidates the notion of increasing opportunity cost. The economy is still efficient but does not buy as much as it could. Something must be done to reduce the amount of employment.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.4P

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