Question

5. Opportunity cost and production possibilities Musashi is a skilled toy maker who is able to produce both trains and balls. He has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of his time. Choice Hours Producing Produced (Trains) (Balls) (Trains) (Balls) A 8 0 4 0 B 6 2 3 8 C 4 4 2 13 D 2 6 1 15 E 0 8 0 16 On the following graph, use the blue points (circle symbol) to plot Musashi's initial production possibilities frontier (PPF). Initial PPF New PPF 0 1 2 3 4 5 6 7 8 30 25 20 15 10 5 0 BALLS TRAINS 4, 0 Suppose Musashi is currently using combination D, producing one train per day. His opportunity cost of producing a second train per day is15 balls per day. Now, suppose Musashi is currently using combination C, producing two trains per day. His opportunity cost of producing a third train per day is13 balls per day. From the previous analysis, you can determine that as Musashi increases his production of trains, his opportunity cost of producing one more trainincreases . Suppose Musashi buys a new tool that enables him to produce twice as many trains per hour as before, but it doesn't affect his ability to produce balls. Use the green points (triangle symbol) to plot his new PPF on the previous graph. Because he can now make more trains per hour, Musashi's opportunity cost of producing balls islower than it was previously.

Answer 1

Choice	Hours per day producing Trains	Hours per day producing Balls	Trains produced per day	Balls produced per day
A	8	0	4	0
B	6	2	3	8
C	4	4	2	13
D	2	6	1	15
E	0	8	0	16

From the given table , we can get The production possibilities frontier as shown in the following figure:

Suppose Musashi is currently using combination D , producing 1 train per day . His opportunity cost of producing a second train per day is (15-13) = 2 balls per day, Because when Musashi producing 1 train then , he is producing 15 balls. And when he produces 2 trains , then ball production reduced to 13 .

Now, suppose Musashi is currently producing combination C, producing two trains per day . His opportunity cost of producing a third trsin per day is (13-8) = 5 balls per day .Because when Musashi produces 2 trains , he also produces 13 balls . And when he produces 3 trains , then balls production reduces to 8 .

So, we can see from this, as Musashi increases his production , his opportunity cost of producing trains goes on increasing.

Suppose Musashi now produces twice as many trains per hour as before, then PPF will tilt outward till where production of trains = 8 , when there is no production of balls.

Now, we can see for each succesive production train , there is now less opportunity of trains. Because now, the slope PPF is flatter which tells us the opportunity cost of trains.