The graph above shows the PPC for a country that can produce oil or televisions.
The straight line is the trade line and CPC if production is at Point A.
Which of the following is a true statement?
A)This country should produce relatively more oil and relatively fewer televisions.
B)This country should produce relatively more televisions and relatively less oil.
C)This country should produce more of both goods.
D)This country is producing the optimal mix of oil and televisions to maximize its income.

Question

The graph above shows the PPC for a country that can produce oil or televisions.
The straight line is the trade line and CPC if production is at Point A.
Which of the following is a true statement?
A)This country should produce relatively more oil and relatively fewer televisions. 
B)This country should produce relatively more televisions and relatively less oil. 
C)This country should produce more of both goods. 
D)This country is producing the optimal mix of oil and televisions to maximize its income.

Quizplus · Accepted Answer

The trade line shows the opportunity cost of producing one good in terms of the other. As the slope of the trade line is negative, the opportunity cost of producing one more television is increasing as the production of television increases. Therefore, the country should produce relatively more oil and relatively fewer televisions to minimize the opportunity cost and maximize its income.

The Graph Above Shows the PPC for a Country That