Economics, Student Value Edition Plus MyLab Economics with Pearson eText - Access Card Package (6th Edition)
Economics, Student Value Edition Plus MyLab Economics with Pearson eText - Access Card Package (6th Edition)
6th Edition
ISBN: 9780134421322
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
Question
Chapter 2, Problem 1TC
To determine

The production possibilities curve for 2020 and 2025.

Expert Solution & Answer
Check Mark

Explanation of Solution

Figure -1 shows the production possibilities curve for 2020 and 2025

Economics, Student Value Edition Plus MyLab Economics with Pearson eText - Access Card Package (6th Edition), Chapter 2, Problem 1TC

Figure -1

In the above graph, vertical axis measures the two – door convertible and the horizontal axis represents the four – door convertible.  In 2020, the maximum production is 100,000 four door sedans or 100,000 two door convertibles. Thus, the apple must be given up producing one –two door convertible to gain one four door sedan.

In 2025, the maximum production is 150,000 two door convertibles or 100,000 four door sedans, thus to gain one four door sedans apple must be give up producing 1.5 two door convertibles.

Opportunity cost of producing one four door sedan in 2020 is calculated as follows

Opportuntiy cost =(Give up unitGained unit)=(100,000100,000)=1

Opportunity cost of producing one four door sedan in 2020 is 1 two –door convertible

Opportunity cost of producing one four door sedan in 2025 is calculated as follows.

Opportuntiy cost =(Give up unitGained unit)=(150,000100,000)=1.5

Opportunity cost of producing one four door sedan in 2025 is 1.5 two –door convertible.

Economics Concept Introduction

Concept introduction:

Opportunity cost: Opportunity cost refers to the value of forgone goods and services to get the other goods and services.

Production possibilities frontier: Production possibilities frontier: PPF refers to the different combination of goods and services that can be produced efficiently with given resources by a country. Any point inside the PPF represents inefficient usage of the resources and any point outside the PPF represents that it is not attainable with the available resources.

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Debra can make either 12 cakes or 16 cookies in 4 hours. Sam can make either 6 cakes or 12 cookies in 4 hours. a. Who has an absolute advantage at producing cakes and who has an absolute advantage at producing cookies? Briefly explain your answers.  b. State Debra’s and Sam’s opportunity costs of producing one cake and one cookie. Draw and place your answer in a table which looks something like this:     Cake Cookie    Debra Sam c. If both Debra and Sam concentrate on producing only the product in which they have a comparative advantage, how many cakes and how many cookies will they produce?
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