Question

A)What is a feasible production allocation?

B)What is an infeasible production allocation?

C)If a PPF has a curved shape, what does that imply in terms of factors of production?

D)More importantly, what happens to the oil revenue of OPEC countries? (Hint: Revenue is equal to price times quantity produced.)

Answer 1

A) Feasible production allocation is the level of production which is either on PPF curve or inside it. In the diagram below, point C, B and D is feasible out of which D and C is efficient while B is inefficient because of not using enough resources.

B) In the diagram above, point A is not feasible because we do not have enough resources to produce that good.

C) PPF is curved shape because it shows diminishing returns to scale because increasing the input for production of one good will raise its actual production level by smaller and smaller amount.

D) As you have not mentioned the time frame for which revenue needs to be considered, I am considering COVID phase where quantity produced have decreased due to decrease in demand which result in decrease in revenue.