7) The graph below represents the PPC for the economy of Fastfoodland. The slope

Question

7) The graph below represents the PPC for the economy of Fastfoodland. The slope of the tangent line at point A is -1/2 and the slope of the tangent line at point D is -2. Pizzas (per day) Hamburgers (per day) Can you determine the opportunity cost of one Pizza when Fastfoodland is producing at point A? If not, what is the most you can say about it? Can you determine the opportunity cost of one Hamburger when Fastfoodland is producing a. b. at point B? If not, what is the most you can say about it? Which points on the graph are productively efficient? Which are attainable but inefficient? Which are unattainable? c.

Explanation / Answer

a. The slope of the PPF represents the opportunity cost of good x in terms of good Y. When slope is -1/2, the opportunity cost of producing 1 pizza is 2 hamburgers.

b. While producing at B, the exact opprtunity cost cannot be calculated from the above iinformation. But it is more than that at point A as more units have of pizza have to be given up.

c. The points which lie on PPf are productively efficient and also attainable such aa point A, B and D. The point which are inside the PPF such as C are attainable but not efficient as all the resouces in the economy are not being fully utilised. Point outside the PPF such as E is not attainable.'

d. At productive effeicient point, Slope of PPF=Py/Px

10/5=2

This happens at point D, when the slope of the curve is 2.

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