Part 1: Draw a PPF diagram for a firm that can make either bricks or rosin....

Part 1: Draw a PPF diagram for a firm that can make either bricks or rosin. Show a point that is productively efficient. Show a point that is inefficient. Show a point that is not possible.

Part 2 :On the same graph, show how PPF changes when the firm buys a new machine to make most rosin more quickly from the same amount of inputs.

Expert Solution

Answer (Part 1) - A PPF curve show combination of two goods which can be produced by given level of resources. A firm produces bricks or rosin from its given level of output. We have drawn a diagram below. Production of brick is measured on vertical axis and production of rosin is measured on horizontal axis. Point 'A' which lies on production possibility curve 'PP' shows efficient production. At this point there is no excess capacity or under capacity. On other hand Point 'B' shows under use of resources, because it lies in-side PP curve.

Point C is unattainable because it lies outside of PP curve. It means firm does not have enough resources to produce this combination of brick and rosin.

Part 2- In the given diagram we can see that production possibility curve has rotated anti-clockwise from PP to PP1 after firm bought new machine to make most rosin more quickly. This machine increased marginal productivity of resource which was used in the production of rosin. Now firm is capable to produce more rosin by using same level of inputs.

Rahul Sunny answered 1 year ago

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