Question

                                                          

1. (4 points) Production Possibility Frontiers: apples and wheat

Table 1. Production of apples and wheat

Apples	Wheat
0	500
1	499
2	495
3	489
4	476
5	453
6	415
7	358
8	275
9	160
10	5

1. (1 point) Draw a production possibilities curve for your two-acre farm between growing apples and wheat. Is there a tradeoff between these two? How is a tradeoff shown in your graph? (Make sure you label you axes.)
2. (1 point) Is the trade-off constant or does it change as you have more or less apples and wheat? How is the trade-off represented in the slope of the line? Why does the trade-off change?
3. (1 point) What is the price of apples? What is the price of wheat? Add a column to Table 1 and give the price of additional bushels of wheat or apples. Where is the price of wheat on your graph? What happens to the price of wheat as you are growing more wheat and fewer apples? Why does the relative price change and how does this relate to the neoclassical theory of production?
4. (1 point) Suppose instead of producing wheat, you produce honey where you attract bees to your apple blossoms and the bees make honey for you using the apples’ pollen? What happens to your production possibility frontier? Does this mean that you have a free lunch?

Answer 1