Question

 

 

Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:

 

Tables	Chairs
0	100
10	80
20	60
30	40
40	20
50	0

1. Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.
2. What is Bill’s opportunity cost of producing one additional table?
3. What is Bill’s opportunity cost of producing one additional chair?
4. Currently Bill is producing 20 tables and 40 chairs.

1. Is this allocation of resources efficient? Why?
2. Show this allocation on the graph and advise Bill how he can be more efficient.

Answer 1

a) Bill’s opportunity cost of producing one additional table is 2 chairs

.As to produce 10 additional tables,bill has to give up 20 chairs.

Therefore ,he can produce 1 table by giving up production of 2 chairs.

b) Bill’s opportunity cost of producing one additional chair is ½ table.

.As to produce 20 additional tables,bill has to give up 10 chairs.

Therefore ,he can produce 1 chair by giving up production of ½ table.

c) This allocation of resources is not efficient because he can produce 20 more chairs with available resources.At 20 tables and 40 chairs,there is under utilisation of resources and point would lie below the PPF curve.

It is represented by point B in the figure

d)

For efficient utilisation of resources,he should produce 20 tables and 60 chairs which is at point A.which lie on the PPF curve representing efficient utilisation of resources