Author Question: How is a budget line similar to a production possibilities frontier? How do they differ? What ... (Read 72 times)

james9437 · **on:** Jun 29, 2018

How is a budget line similar to a production possibilities frontier? How do they differ?

What will be an ideal response?

Question 2

What factors of production can a firm change in the short run? In the long run?

What will be an ideal response?

ally · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Both the budget line and the production possibilities frontier illustrate limits. The budget line describes the limits to consumption possibilities; the production possibilities frontier describes the limits to production possibilities. A consumer is unable to consume combinations of goods that lie beyond his or her budget line. Similarly, a nation is unable to produce combinations of goods that lie beyond its production possibilities frontier.

Answer to Question 2

In the short run, the firm can change its variable factors of production, such as labor. The firm cannot change its fixed factors of production, such as its capital stock. The factors of production the firm cannot change are called its plant. In the long run, the firm can change all of its factors of production. Indeed, the long run is defined as the period of time long enough so that the firm can change all of its factors of production.