Question

1. In the space below you will again draw two graphs, side by side. The graph on the left will show the production possibilities frontier (PPF) for Country A and the graph on the right will show the PPF for Country B. Assume that each of these countries produces only two goods: Fish and broccoli. For both countries you will show the quantity (in pounds) of fish produced on the vertical axis and the quantity (pounds) of broccoli produced on the horizontal axis.

Draw a production possibilities frontier (PPF) for Country A indicating that it can efficiently produce 100 pounds of fish only if it drops its production of broccoli to zero, and that it can produce 200 pounds of broccoli only if it drops its production of fish to zero (assume a constant OC . Draw also a production possibilities frontier (PPF) for Country B indicating that it efficiently can produce 75 pounds of fish only if it drops its production of broccoli to zero, and that it can efficiently produce 100 pounds of broccoli only if it drops its production of fish to zero (OC is constant)

b-What is Country A’s OC for broccoli? Show all your calculations clearly

c-What is Country A’s OC for fish? Show all your calculations clearly

d-What is Country B’s OC for broccoli? Show all your calculations clearly

e-What is Country B’s OC for fish? Show all your calculations clearly

Answer 1

a) Production Possibility Curve (PPC) can be defined as a curve which shows various combinations of two commodities that can produced with the given resources in an economy during a specific period of time.

The production possibility curve for country A and B can drawn as follows

In the diagram, x axis represents broccoli and Y axis represents fish for country A and B. Country A can produce 100 pounds of fish or 200 pounds of broccoli. Country B can produce 75 pounds of fish or 100 or pounds of broccoli.

The straightline production possibility curve implies constant opportuniyy cost for both countries.

b) Opportunity cost of producing one unit of a commodity can be defined as the amount of of other commodity that has to be given up to produce an additional unit of a commodity.

Country A has to given up 100 pounds of fish to produce 200 pounds of broccoli.

Therefore to produce one pound of broccoli, country A has to given up 100/200 = 0.5 pounds of fish

Country A's opportunity cost of broccoli= 0.5 pounds of fish

c) Country A has to given up 200 pounds of broccoli to produce 100 pounds of fish.

To produce one pound of fish, it has to given up 200/100= 2 pounds of broccoli

Country A's opportunity cost for fish = 2 pounds of broccoli

d) Country B has to given up 75 pounds of fish to produce 100 pounds of broccoli.

To produce one pound of broccoli, it has to given up 75/100= 0.75 fish

Country B's opportunity cost for broccoli= 0.75 pounds of fish

e) Country B has to given up 100 pounds of broccoli to produce 75 pounds of fish

To produce one pound of fish it has to given up 100/75= 1.33 pounds of broccoli

Country B's opportunity cost for fish = 1.33 pounds of broccoli.