Exercises on Opportunity Costs and the Production Possibilities Curve 1000 Yards
ID: 1131987 • Letter: E
Question
Exercises on Opportunity Costs and the Production Possibilities Curve 1000 Yards 800 of 600 !.. Cloth 400 - 200i.ie Of Cern 500 750 900:1000 475 1. What is the opportunity cost of producing the first 500 bushels of com? 2. What is the opportunity cost of producing the first 200 yards of cloth? 3. What is the opportunity cost of producing 1,000 yards of cloth? 4. Suppose the economy is initially producing combination d, what is the opportunity cost if it decides to produce combination b instead of d? 5. If the economy is initially producing combination b, what is the opportunity cost of producing 500 more bushels of com? 6. If the economy is currently producing 200 yards of cloth and 900 bushels of corm, what can you say about the production at this level? 7. Suppose the economy is producing 600 yards of cloth and 500 bushels of corn, what is the opportunity cost of producing 200 8. What happens to the opportunity cost of producing yards of cloth from 0 to 200 to 400, and so on up to 1000? 9. Suppose the economy wants to produce combination b, what must happen for the economy to achieve this production level? 0. Suppose this economyepericnces a masive fire and severe landslides, depict what will happen to is production more yards of cloth? possibilities curve.
Explanation / Answer
Opportunity cost is the amount of a good that is not produced when an individual nation or manufacturer is able to use all the resources and the available technology in the production of one particular good. In this case we can see the nation is able to produce 1000 yards of clothes or 1000 bushel of corn with increasing opportunity cost of producing a bushel of corn.
1) The opportunity cost of producing first 500 bushels of corn is 200 yards of cloth which can be seen from a movement of production possibility from point a to point b.
2) The opportunity cost of producing first 200 yards of cloth is 25 bushels of corn which can be seen from a movement of production possibility from point f to point e.
3) The opportunity cost of producing 1000 yards of cloth is 1000 bushels of corn which can be seen from a movement of production possibility from point f to point a.
4) The opportunity cost a movement of production possibility from point d to point b is the reduction in production of corn by 400 bushels of corn
5) The opportunity cost of producing 500 more bushels of corn when it is at point b is 800 yards of cloth which is shown by a movement from point b to point f.
6) 200 yards of cloth and 900 bushels of corn does not lie on the PPF because the relevant point is point e where the nation can produce 975 bushels of corn efficiently. Hence this bundle (200 yards of cloth and 900 bushels of corn) is inefficient
7) It is 0 because the nation is underproducing at this level. It can raise corn production without reducing cloth production
(Note: Only 4 subparts of a question are required to be answered according to the rules)
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