1. Paul can make either “600 bottles of wine and 0 boxes of chocolates” or “0...

1. Paul can make either “600 bottles of wine and 0 boxes of chocolates” or “0 bottles of wine and 4800 boxes of chocolates” or a combination of wine and chocolates. For parts (a) through (c) of this question assume that Paul’s PPF reflects the property of constant opportunity costs.

a. [5 points] Draw Paul's Production Possibility Frontier (PPF).
b. [10 points] Find Paul's opportunity cost of a box of chocolate in terms of bottle(s) of wine.
c. [5 points]Suppose PAUL takes a course called CHOCOLATES 103. After the semester is over he realizes that he can now make either “1200 bottles of wine and 0 boxes of chocolates” or “0 bottles of wine and 12000 boxes of chocolates” or a combination of wine and chocolates. Find PAUL's new opportunity cost of a bottle of wine in terms of box(es) of chocolates.

[15 points] Predict the direction of change (rise or fall) in the equilibrium price and quantity in the market for gasoline this week if drivers come to expect that the price of gasoline will fall next week. Use a demand-supply graph to justify your prediction.
[15 points] Find the equilibrium price, quantity and revenue in a market characterized by the following information:

Demand: Qd = 500 - 2P Supply: Qs = 3P

Solutions

Expert Solution

Rahul Sunny answered 8 months ago

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