The production possibilities table below illustrates the real economic sacrifice
ID: 1234742 • Letter: T
Question
- The production possibilities table below illustrates the real economic sacrifices (costs) which the choice of different production combinations entails (a) What is the cost of producing:
i. the first ton of coal ii. three tons of coal iii. the third ton of coal iv. one ton of coal when two tons are being produced (b) Is it reasonable to expect costs to rise as more and more of a product is produced? Explain why this must occur.
Combinations Pounds of Bread Tons of Coal a 12,000 0 b 11,000 1 c 9,000 2 d 5,000 3 e 0 4
i. the first ton of coal ii. three tons of coal iii. the third ton of coal iv. one ton of coal when two tons are being produced i. the first ton of coal ii. three tons of coal iii. the third ton of coal iv. one ton of coal when two tons are being produced (b) Is it reasonable to expect costs to rise as more and more of a product is produced? Explain why this must occur. Combinations Pounds of Bread Tons of Coal a 12,000 0 b 11,000 1 c 9,000 2 d 5,000 3 e 0 4
Explanation / Answer
Answer:
a)
i) 11,000 lb
ii) 25,000 lb
iii) 5,000 lb
iv) if:
b & c are being produced then cost of one is 10,000 lb
c & d are being produced then cost of one is 7,000 lb
b & b are being produced then cost of one is 8,000 lb
b)
It is seen generally that as production increases the cost of production goes on decreasing but this is true until a point is approached known as equilibrium point where production is maximum and it is depicted by:
E=MR=MC=AR=AC=P
Above this point(which can be thought of saturation point) the production will not increase(as per expectations) but the cost will increase manifolds so at this stage one can feel it reasonable to anticipate/expect costs to rise as more and more of a product is produced.
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