Assume an economy produces only two goods ( shoes and computers ) with a fixed amount of productive resources and technology and employing all its productive resources to the maximum. Production in this economy is subjected to the laws of diminishing marginal returns and resources are assumed to be fully optimized. In addition, the cost of sacrificing shoes for computers and vice versa is 1. On the basis of the forgoing assumptions , ( i )economy's production possibility frontier on hindsight of the relevant assumption ( ii ) why the points outside the frontier unattainable? ( III ) identify three ways by which the economy can attain the level of production outside the production possibility frontier.
Assume an economy produces only two goods ( shoes and computers ) with a fixed amount of productive resources and technology and employing all its productive resources to the maximum. Production in this economy is subjected to the laws of diminishing marginal returns and resources are assumed to be fully optimized. In addition, the cost of sacrificing shoes for computers and vice versa is 1. On the basis of the forgoing assumptions ,
( i )economy's production possibility frontier on hindsight of the relevant assumption
( ii ) why the points outside the frontier unattainable?
( III ) identify three ways by which the economy can attain the level of production outside the production possibility frontier.
( iv ) what happens to the production possibility frontier when the economy discovers an improved technology for shoes
( v ) what happens to the production possibility frontier when technological change overwhelmingly favors the production of computers.
( vi ) assume now the sacrifice ratio is greater than 1, show what will happen to the shape of the production possibility frontier.
(vii) mention two conditions under the sacrifice ratio between the goods will be zero.
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