Textbook Problem

Construct a production possibilities curve for a hypothetical country. Put public capital goods per year on the vertical axis and consumer goods per year on the horizontal axis. Not shown directly in your graph, assume that this country produces just enough private capital per year to replace its depreciated capital. Assume further that this country is without public capital and is operating at point A, where consumer goods are at a maximum. Based on the above research and using a production possibilities curve, show and explain what happens to this country’s private capital, production possibilities curve, and standard of living if it increases its output of public capital.