Question

In: Economics

Given the production possibility schedule, answer the following questions. Production Possibility Schedule Product &n

Given the production possibility schedule, answer the following questions.

Production Possibility Schedule

Product A B C D E F

Tanks 0 1 2 3 4 5

Automobiles 1,000 950 850 650 350 0

(a) Graph the PPF for this schedule. What happens to the opportunity cost of each additional tank in terms of automobiles as one moves from A to F? What accounts for this?

(b) Given the production possibility schedule, what can be said about a combination of four (4) tanks and 650 automobiles?

(c) Given the production possibility schedule, what can be said about a combination of three (3) tanks and 350 automobiles?

Expert Solution

(a)

Combination	Tanks	Automobiles
A	0	1000
B	1	950
C	2	850
D	3	650
E	4	350
F	5	0

Opportunity cost of tank in terms of automobiles from A to F = (Loss in automobile production / Gain in tank production)

A movement from A to F leads to decrease in automobile production from 1000 to 0

and increase the production of tank from 0 to 5

=> Opportunity cost of tank in terms of automobiles from A to F = (1000 / 5)

=> Opportunity cost of tank in terms of automobiles from A to F = 200 automobile per tank

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(b) Production of 4 tanks and 650 automobile.

We can see that the combination of 4 tanks and 650 automobiles is lies outside the PPF and it is represented by point X. It means, this combination can't be produced with the given level of resources.

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(c) Production of 3 tanks and 350 automobiles.

We can see that the combination of 3 tanks and 350 automobiles is lies inside the PPF and it is represented by point Y. It means, this combination can be produced with the given level of resources. Since, it is lies inside the PPF, this production does not efficiently utilize the given resources

Rahul Sunny answered 2 years ago

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