Which one of the following statements is true with regard to an economy which is on its production possibility frontier?

A production possibility frontier (PPF) represents the maximum output combinations of two goods an economy can produce given its fixed resources and technology [2]. When an economy operates on its frontier, it is achieving maximum productive efficiency and full resource utilization [1]. Because resources are finite and scarce, increasing the production of one commodity necessitates diverting resources away from the other, resulting in a decrease in its output [1]. This trade-off is the essence of opportunity cost. Points inside the frontier indicate inefficiency or underemployment, where it is possible to increase one good's production without reducing another [1]. However, on the frontier itself, any gain in one area requires a sacrifice in another. The PPF is typically downward sloping, reflecting this inverse relationship between the two goods.

Sources

1. [1] Microeconomics (NCERT class XII 2025 ed.) > Chapter 1: Introduction > Table1.1: Production Possibilities > p. 4
2. [2] Microeconomics (NCERT class XII 2025 ed.) > Chapter 1: Introduction > Production Possibility Frontier > p. 3