Question

Answer the following questions: a) Draw a production possibilities curve showing the number of apples and pears that one person can pick in a given time period.

(i) Show efficient, inefficient, and impossible levels of output.

(ii) Why does the curve slope downwards?

(iii) What does the model tell us about the principle of opportunity cost?

(iv) Explain why a combination of apples and pears (i.e. a level of output at a middle point along the curve) gives you more fruit that if you had picked only apples.

(v) Why is the curve not a straight line? b) Ada, Brenda and Cathy are good friends since high school. All of them have just completed a degree in Business Administration. Brenda is an average student in both management and marketing. Ada is a top student in marketing and is only okay in management. However, Ada is still better than Brenda in both areas. Cathy is good in management but very poor in marketing.

Answer 1

(a) A production possibilities frontier is shown in the diagram below (PP').

(i) All the points on the frontier (such as point A) are efficient, where the resources are used efficiently. Any point below the frontier (such as point B) is inefficient since resources are not used to its full capacity. On the other hand, any point which lies outside the frontier (such as point C) is infeasible or impossible to produce given the resource level.

(ii) The slope of the frontier is negative (i.e., the frontier is downward sloping) because picking more of one fruit means picking less of other fruit. That is one has to sacrifice some of the one fruit to pick the other fruits.

(iii) The model is based on the law of increasing opportunity cost. That is, the opportunity cost goes on increasing if we continue to pick one fruit. Hence, the frontier is concave to the origin.

(iv) Because, one needs to sacrifice less of one good to get more of other good, which results in net addition to the number of fruits.

(v) The curve is not straight line, because the opportunity cost goes on increasing if one goes on picking one of the fruit. In case of a linear frontier, the opportunity cost would have been constant across the curve.

(b) I guess, this question is not complete.

Thanks