21. Suppose an economy has the production possibility frontier characterized by

Question

21. Suppose an economy has the production possibility frontier characterized by X +2Y 100. The vertical and horizontal intercepts of the frontier are a. 50 and 100. b. 100 and 50. c. 100 and 100. d. 100 and 200. e. cannot be determined from the information given. Suppose an economy has the production possibility frontier characterized by X + 2Y 100. The opportunity cost of producing one unit of X a. is 2 units of Y. b. depends on the level of X and Y since the slope of the PPf changes c. is 1 unit of Y. d. is units of Y. e. can not be determined from the information given

Explanation / Answer

21. Suppose an economy has the production possibilities frontier characterized by X+ 2Y= 100.

Vertical intercept can be calculated by Substituting x=0 into the equation => X + 2Y=100 => 2Y=100 => Y= 50

Horizontal intercept can be calculated by Substituting Y=0 into the equation => X + 2Y=100 => X =100

Hence, option (a) will be the right answer.

22. Suppose an economy has the production possibilities frontier characterized by X+ 2Y= 100.

The opportunity cost is the cost of the choice that you give up in order to choose something else.

Here, in this case, it is the number of units forgone in order to produce an additional unit of another good.

So the opportunity cost of producing one unit of X is 1/2 units of Y.

Here, we see to produce one unit of Y, we need to give 1/2 units of Y.

X+ 2Y=100 X Y 0 50 1 49.5 2 49 3 48.5 4 48 5 47.5 6 47 7 46.5 8 46 9 45.5 10 45

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.