- 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 has a
single-price monopolist 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 has a
single-price monopolist but the lime industry is perfectly
competitive. Is point D allocatively efficient? Is it
productively efficient?
