Question

Suppose that a government faces a choice among various levels of defense, represented by the production of missiles, and of food, represented by the production of corn. The following figures indicate the various combinations of missiles and corn that the country can produce:

Possibility Missiles (# per year) Corn (millions of bushels per year)

A 0 11

B 2 10

C 4 8

D 6 6

E 8 3

F 10 0

a. Can this country produce more than 12 million bushels of corn per year? Can it produce more than 10 million bushels per year? Can it produce more than 11 missiles per year? Can it produce more than 9 missiles per year?

b. Suppose the government of this country decides that, in the interest of national security, it must produce 4 missiles per year. What is the number of bushels of corn it can produce?

c. Measured in terms of corn, what is the cost of producing 4 missiles per year rather than 2 missiles per year?

d. Suppose that this country develops and obtains new technology to produce 50% more corn at each level of missile production shown in the table above. Will the new production possibilities curve be closer to, or farther from the origin than the one graphed in part a?

e. Under the conditions described in part d, what is the cost of producing 4 missiles per year rather than 2 missiles per year?

Answer 1

(a) The maximum amount of missile that can be produced is 10 and the maximum amount of corn that can be produced is 11 million bushels. Thus, it can produce more than 10 million but not produce more than 12 million bushels of corn. It can produce more than 9 but can not produce more than 11 missiles.

(b) If it wants to produce 4 missiles, then the corn that can be produced is 8 million bushels

(c) in terms of corn, what is the cost of producing 4 missiles per year rather than 2 missiles is the amount of corn production that is lost = 10 -8 = 2million bushels of corn

(d) If the country develops and obtains new technology to produce 50% more corn at each level of missile production, then the production possibilities will expand and the curve will move outward, farther away from the origin.