The diagram below shows the production possibilities boundary for a country that produces only two goods: limes and coconuts. Assume that resources are fully employed at points A, B, C, and D.
a. Suppose individual firms in the lime industry are not producing at their minimum possible cost. Which point(s) could represent this situation?
b. Suppose all firms and both industries are productively efficient. Which points could represent this situation?
c. Suppose point B occurs when the lime industry is monopolized but the coconut industry is perfectly competitive. Is point B allocatively efficient? Is it productively efficient?

d. Suppose point D occurs when the coconut industry is monopolized but the lime industry is perfectly competitive. Is point D allocatively efficient? Is it productively efficient?
e. Suppose point C is allocatively efficient. What do we know about each industry in this case?

Transcribed Image Text:

Limes