PPCurves, Problem Solver
Problem Set #1: Production Possibilities Curves Key Concepts: Resources - the basic inputs in the production of goods and services Labour - human time and effort applied to the production of goods and services Capital - productive inputs produced by society Land - natural resources prior to human production Consumer Goods : goods or services to satisfy consumer wants Production Possibilities Curve: maximum output combinations of two commodities from given resources and technology Opportunity Cost: the cost of the best foregone option Commodities: tangible (goods) and intangible (services) items for sale Problems 1.
Labour is the only resource in an economy with the following maximum production possibilities. (The graph is drawn as a curve rather than points under the assumption that opportunity cost is constant between options) Option 1 2 3 4
Clothes (Tons)
Food (Tons)
50 40 20 0
0 30 70 100
a) b) c) d) e) f)
What is the opportunity cost of increasing Clothes production from 20 to 40 tonnes? What is the opportunity cost of increasing Food output from 70 to 100 tonnes? Is point D an output option for this economy? Explain your answer. What does point B represent in terms of resources? Is point C a better output combination than A? Explain. What change in the economy is necessary to produce 50 tons of Clothes and 50 tons of Food if the labour force remains unchanged?
2.
The table below gives some production possibilities for a country producing only two goods: raw material output (Qr) and manufacturing output (Qm). All resources are fully employed. Assume constant opportunity costs between these options.
a) b) c) d) e) f) g)
Qr (units) 11 10 8.5 6 3 0 Qm (units) 0 2 4 6 8 8.5 Graph the production possibilities curve with Qr on the horizontal axis. What is the opportunity cost to the economy of increasing manufacturing output (Qm) from: (i) 0 to 2 units? (ii) 2 to 8 units? Pick a point on your diagram to represent less than full employment of labour force is employed (relax the full employment assumption). Graph the effects of a technological improvement that increases productivity in the manufacturing sector only. Starting from your original graph, illustrate the effects of a contraction in the labour force (e.g., emigration) with no technological change in either the raw material or manufacturing sectors. The PPC is typically drawn concave to the origin. What would be the assumption underlying a PPC which is a straight line? What is the difference between the resource cost of a commodity and the opportunity cost of -1-
Problem Set #1: Production Possibilities Curves a commodity? 3.
The following table gives the production possibilities for an economy with full employment of its resources, land, labour, and capital.
Option Steel (thousand tons) Bread (million loaves)
A 100 0
B 90 60
C 70 120
D 50 160
E 25 180
F 0 200
a) What is the opportunity cost of increasing bread output from 60 to 120 million loaves? b) What is the opportunity cost per tonne of raising steel output from 50 to 70 thousand tons? c) What is the opportunity cost of increasing bread output from 169 to 170 million loaves if opportunity cost is constant within this option? d) What are the intercepts on the vertical (Steel) and horizontal (Bread) axes for the Production Possibilities curve that results if technological change increases Steel output by 50% and Bread output by 25% with no change in resources. e/ What is the effect on the Production Possibilities curve if gross investment is greater than depreciation? 4.
Albert: "In the last few years there has been dramatic progress in agriculture. New techniques and equipment have brought large increases in productivity". Basil: "Agricultural output, however, has hardly increased at all. It is non-agricultural output that has increased even though there has been relatively little technological progress in nonagricultural industries". Assuming that both Albert's and Basil's facts are right, and that there is full employment: can you reconcile their statements? Portray your explanation on a production possibility curve, with agricultural output on the horizontal axis and non-agricultural output on the vertical axis.
5.
Consider the following Production Possibilities Curve. Assume that opportunity cost of individual units is constant within each option.
Option Capital Goods (Units) Consumer Goods (Units)
A 30 0
B 28 10
C 25 19
D 20 25
E 15 30
F 10 35
G 0 40
a) What is the opportunity cost of adding the 29th unit of consumer goods? b) What is the opportunity cost of increasing capital goods output from 25 to 30 units? c) What is the opportunity cost of increasing output from 15 capital goods and 25 consumer goods to 20 capital goods and 25 consumer goods? d) Opportunity cost is constant between which options? e) Draw the production possibility curve that results from technological change that increases capital goods production by 33% without affecting consumer goods output. f) Draw a curve on the diagram representing the production possibility curve following a war that destroys half the country's land, labour, and capital. Label this curve W. g) Suppose depreciation is 15 units of Capital. Will the Production Possibilities curve be smaller, unchanged, or greater in the next time period if the option chosen is i) C? ii) F? ii) E?
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Problem Set #1: Production Possibilities Curves 6. a) b) c)
d) 7.
Suppose that Labour is Canada's only resource and that one unit of Labour can produce either 2 units of Housing or 5 units of Food. Draw Canada's Production Possibility Curve (PPCo) if Canada has 50 units of Labour. Put Housing on the vertical axis. Now draw in your diagram the Production Possibilities Curve that would result if technological change doubled only the Housing output of a unit of Labour. (2 marks) Using any point (Qo) on your original PPCo curve as a reference, alter your diagram in part b) to demonstrate how the output of Housing chosen by society to consume could decline even if there was full employment and a technological doubling of Housing output per labour unit. What would be the effect on opportunity cost of the amount of output for both Housing and Food doubled for a unit of Labour?
The production possibilies curve for a country producing Food and Lumber is F = 1800 –3L. a) What is the maximimu amount of food that this country can produce? b) What is the maximum amount of lumber that this country can produce? c) What is the opportunity cost of increasing lumber production from 500 to 600 units? What is the opportunity per unit of raising food production from 200 to 201 units? d) Suppose that the economy is presently producing 400 units of lumber and 400 units of food. What is the opportunity cost of producing 600 units of food and 400 units of lumber? e) Suppose that this country has 300 units of a homogeneous resource (comprised of capital, labour, and land). What is the output of lumber per unit of resource? What is the output of food per unit of resource? f) Suppose that the country would like to produce 600 units of lumber and 600 units of food. If there is no technological change, what is the minimum amount of resources needed to produce this output? f) Suppose that technological change increases the output of food per resource by 50%. Sketch the production possibility curve. What is the equation for the production possibilities curve? Multiple Choice
1.
Net Investment a/ is the creation of capital goodsb/ is Gross Investment less Depreciation c/ is the financial and physical assets used to make other goods d/ is the Capital Stock of a country e/ only a/ and c/ are correct
2.
A society can increase its production possibilities curve through a) Investment = Depreciation b) Net Investment c) Emigration of the Labour Force d) Technological improvement with no change in resources e) only b) and d) are correct
3.
If resources are not specialized - that is, there is perfect substitution of resources, then the opportunity cost of different output options is a/ decreasing b/ increasing c/ constant d/ zero Suppose that a production possibilities graph shows that at point A total employment of a country's resources could produce 65,000 tons of steel and 50,000 pieces of clothing, then point B with 75,000 tons of steel and 50,000 pieces of clothing is a) preferable to A and on the production possibilities curve b) not preferable to A and on the production possibilities curve
4.
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Problem Set #1: Production Possibilities Curves c) preferable to A and above the production possibilities curve d) not preferable to A and below the production possibilities curve e) preferable to A and below the production possiblilies curve 5.
A Production Possibility Curve cannot be convex to the origin because a/ resources are scarce b/ some resources are specialized c/ the output combinations would not maximize the use of specialized resources d/ output of one commodity entails opportunity cost of the other e/ resources would be unemployed
6.
Which of the following statements is not true for a Production Possibilities diagram? a) Combinations inside the Production Possibilities Curve represent unemployed resources. b) An improvement in technology which affects the output of only one commodity will increase every combination of the Production Possibilities Curve. c) An increase in resources which affects output of both commodities will increase every combination of the Production Possibilities Curve. d) A linear Production Possibilities Curve reflects constant opportunity cost e) Opportunity cost can not decrease along the Production Possibility curve.
7.
Some of one commodity must be given up to attain more of another commodity on a Production Possibilities curve because: a) resources are specialized b) resources are scarce c) opportunity cost is constant d) opportunity cost increases e) resources are interchangeable Solutions
1.a) 40 tonnes of Food b) 20 tonnes of Clothing c) D is not attainable with present resources and technology d) A is preferable since B represents unemployed resources e) A and C are both maximum output combinations so that we can't choose between them without information on societal wants f) Technological change. 2.a) b) c) d)
See Graph i) 1 unit of Qr ii) 7 units of Qr Any point below PPC PPCt on graph
e) PPCL on graph f) Opportunity Cost is constant because the resource units do not differ in output g) Resource cost is the cost measured in resources used whereas opportunity cost is the cost of the best foregone option (i.e., measured in the commodity given up)
3.a) 20 thousand tonnes of Steel. b) 2 thousand Loaves of Bread [(40 million Loaves)/20 thousand tonnes)] c) 1 million loaves of Bread cost (25,000)/(20) =5/4 thousand tonnes of Steel per million loaves. d) Steel intercept = 150 tonnes. Bread intercept = 250 Loaves -4-
Problem Set #1: Production Possibilities Curves e) Gross Investment > Depreciation => Net Investment => Capital Accumulation 4.
=> Increased PPC
Technological change has made it possible to produce much more agricultural output with the same quantities of resources, but hardly any more non-agricultural output with the same quantities of resources. The production possibility curve has shifted outward as in the diagram below. Suppose that the economy was originally at A, producing 0A of agricultural output and ON of nonagricultural output. According to Basil the new equilibrium is higher than A (increased non-agricultural output) but not much to the right of A (very little increase in agricultural output). The new equilibrium is at a point like B. This shows that there are different ways of taking advantage of increased productivity in agriculture. One way isuse the same resources to produce more agricultural output, e.g., at point C. At B, however, production of about the same quantity of agricultural output as before requires fewer resources (since productivity is up) and the left-over resources are producing extra non-agricultural output.
5.a) 1 unit of Capital Goods [(5 Capital Goods)/(5 Consumer Goods)] b) 19 units of Consumer Goods c) No opportunity cost since merely using unemployed resources d) Between options D and F. e) PPCt on graph f) PPCw on graph g) Net Investment = Capital Output - Depreciation i) Net Investment = 10 units of Capital => Increased PPC ii) Net Investment = -5 units of Capital => Decreased PPC iii) Net Investment = 0 units of Capital => No change in PPC 6.a) PPPo on graph b) PPPt on graph c) Compare Qo and Q1 d) Opportunity Cost would not change since output doubles for each commodity
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Problem Set #1: Production Possibilities Curves 7.a) Maximum Food = 1800 – 3(0) = 1800 b) Maximum Lumber = 1800/3 = 600 c) The equation is linear so opportunity Cost is constant. The opportunity cost per unit of lumber per unit is –(-3) = 3 Food. Increasing lumber from 500 to 600 units costs 100*3 = 300 units of Food. The opportunity cost per unit of food = -(1/-3) = 1/3 lumber d) The country can produce 1800 – 3(400) = 600 units of food if it produces 400 units of lumber or (1800 – 400)/3 = 466 2/3 units of lumber if it produces 400 units of food. Hence the country is below the PPC at (400, 400). There is no opportunity cost in moving from (400F, 400L) to (600F, 400L) because the economy uses unemployed resources. The country can produce (600F, 400L) but not (700F, 400L) which is above the PPC. e) This simplest numbers for calculation here are the maximum values. The output of lumber per unit of resource is 600/300 = 2. The output of food per unit of resource is 1800/300 = 6. f) e) gives us the output per unit of resource. The country would need 600/2 = 300 units of resource to produce 600L and 600/6 = 100 units of resource to produce 600F. The total resources necessary is therefore 400. g) A 50% increase in productivity for food means that maximum food (no lumber) = 1800*1.5 = 2700 and that the opportunity cost of food per unit of lumber is now 1.5*3 = 4.5. The new PPC curve has a new Food intercept of 2700 and an unchanged lumber intercept of 600 giving a slope of -4.5. The new equation is F = 2700 – 4.5L. Multiple Choice 1. b)
2. e)
3. c)
4.c)
5. c)
6. b)
7. b)
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Problem Set #1: Production Possibilities Curves Future questions 1.
Give the production possibilities for a set of inputs and then ask for the production possibilities (students have to order them maximally)
2.
Ask a better OC question for movement from a point within but not on the PPC
3.
Ask where opportunity cost is constant on a PPC curve
4
What is the opportunity cost of producing 110,000 units of Roads and 70,000 units of Health Care? _________________________ (1 mark) [given that this would be above the PPC]
5.
The production possibilies curve for a country producing lumber and food is L = 1000 –2F. a) What is the amount of lumber that this country can produce if it produces only lumber? b) What is the amount of food that this country can produce if it produces only food? c) What is the opportunity cost of increasing lumber production from 500 to 600 units? What is the opportunity per unit of increasing food production from 200 to 201 units? d) Suppose that the economy is presently producing 300 units of lumber and 300 units of food. What is the opportunity cost of producing 400 units of lumber and 300 units of food? What is the opportunity costs, relative to 300L and 300F, of producing 460 units of lumber and 300 units of food? e) Suppose that this country has 500 units of a homogeneous resource (comprised of capital, labour, and land). What is the output of lumber per unit of resource? What is the output of food per unit of resource? f) Suppose that the country would like to produce 400 units of lumber and 600 units of food. If there is no technological change, what is the minimum amount of resources needed to produce this output? f) Suppose that technological change increases the output of food per resource by 50%. Sketch the production possibility curve. What is the equation for the production possibilities curve?
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Labour is the only resource in an economy with the following maximum production possibilities. (The graph is drawn as a curve rather than points under the assumption that opportunity cost is constant between options) Option 1 2 3 4
Clothes (Tons)
Food (Tons)
50 40 20 0
0 30 70 100
a) b) c) d) e) f)
What is the opportunity cost of increasing Clothes production from 20 to 40 tonnes? What is the opportunity cost of increasing Food output from 70 to 100 tonnes? Is point D an output option for this economy? Explain your answer. What does point B represent in terms of resources? Is point C a better output combination than A? Explain. What change in the economy is necessary to produce 50 tons of Clothes and 50 tons of Food if the labour force remains unchanged?
2.
The table below gives some production possibilities for a country producing only two goods: raw material output (Qr) and manufacturing output (Qm). All resources are fully employed. Assume constant opportunity costs between these options.
a) b) c) d) e) f) g)
Qr (units) 11 10 8.5 6 3 0 Qm (units) 0 2 4 6 8 8.5 Graph the production possibilities curve with Qr on the horizontal axis. What is the opportunity cost to the economy of increasing manufacturing output (Qm) from: (i) 0 to 2 units? (ii) 2 to 8 units? Pick a point on your diagram to represent less than full employment of labour force is employed (relax the full employment assumption). Graph the effects of a technological improvement that increases productivity in the manufacturing sector only. Starting from your original graph, illustrate the effects of a contraction in the labour force (e.g., emigration) with no technological change in either the raw material or manufacturing sectors. The PPC is typically drawn concave to the origin. What would be the assumption underlying a PPC which is a straight line? What is the difference between the resource cost of a commodity and the opportunity cost of -1-
Problem Set #1: Production Possibilities Curves a commodity? 3.
The following table gives the production possibilities for an economy with full employment of its resources, land, labour, and capital.
Option Steel (thousand tons) Bread (million loaves)
A 100 0
B 90 60
C 70 120
D 50 160
E 25 180
F 0 200
a) What is the opportunity cost of increasing bread output from 60 to 120 million loaves? b) What is the opportunity cost per tonne of raising steel output from 50 to 70 thousand tons? c) What is the opportunity cost of increasing bread output from 169 to 170 million loaves if opportunity cost is constant within this option? d) What are the intercepts on the vertical (Steel) and horizontal (Bread) axes for the Production Possibilities curve that results if technological change increases Steel output by 50% and Bread output by 25% with no change in resources. e/ What is the effect on the Production Possibilities curve if gross investment is greater than depreciation? 4.
Albert: "In the last few years there has been dramatic progress in agriculture. New techniques and equipment have brought large increases in productivity". Basil: "Agricultural output, however, has hardly increased at all. It is non-agricultural output that has increased even though there has been relatively little technological progress in nonagricultural industries". Assuming that both Albert's and Basil's facts are right, and that there is full employment: can you reconcile their statements? Portray your explanation on a production possibility curve, with agricultural output on the horizontal axis and non-agricultural output on the vertical axis.
5.
Consider the following Production Possibilities Curve. Assume that opportunity cost of individual units is constant within each option.
Option Capital Goods (Units) Consumer Goods (Units)
A 30 0
B 28 10
C 25 19
D 20 25
E 15 30
F 10 35
G 0 40
a) What is the opportunity cost of adding the 29th unit of consumer goods? b) What is the opportunity cost of increasing capital goods output from 25 to 30 units? c) What is the opportunity cost of increasing output from 15 capital goods and 25 consumer goods to 20 capital goods and 25 consumer goods? d) Opportunity cost is constant between which options? e) Draw the production possibility curve that results from technological change that increases capital goods production by 33% without affecting consumer goods output. f) Draw a curve on the diagram representing the production possibility curve following a war that destroys half the country's land, labour, and capital. Label this curve W. g) Suppose depreciation is 15 units of Capital. Will the Production Possibilities curve be smaller, unchanged, or greater in the next time period if the option chosen is i) C? ii) F? ii) E?
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Problem Set #1: Production Possibilities Curves 6. a) b) c)
d) 7.
Suppose that Labour is Canada's only resource and that one unit of Labour can produce either 2 units of Housing or 5 units of Food. Draw Canada's Production Possibility Curve (PPCo) if Canada has 50 units of Labour. Put Housing on the vertical axis. Now draw in your diagram the Production Possibilities Curve that would result if technological change doubled only the Housing output of a unit of Labour. (2 marks) Using any point (Qo) on your original PPCo curve as a reference, alter your diagram in part b) to demonstrate how the output of Housing chosen by society to consume could decline even if there was full employment and a technological doubling of Housing output per labour unit. What would be the effect on opportunity cost of the amount of output for both Housing and Food doubled for a unit of Labour?
The production possibilies curve for a country producing Food and Lumber is F = 1800 –3L. a) What is the maximimu amount of food that this country can produce? b) What is the maximum amount of lumber that this country can produce? c) What is the opportunity cost of increasing lumber production from 500 to 600 units? What is the opportunity per unit of raising food production from 200 to 201 units? d) Suppose that the economy is presently producing 400 units of lumber and 400 units of food. What is the opportunity cost of producing 600 units of food and 400 units of lumber? e) Suppose that this country has 300 units of a homogeneous resource (comprised of capital, labour, and land). What is the output of lumber per unit of resource? What is the output of food per unit of resource? f) Suppose that the country would like to produce 600 units of lumber and 600 units of food. If there is no technological change, what is the minimum amount of resources needed to produce this output? f) Suppose that technological change increases the output of food per resource by 50%. Sketch the production possibility curve. What is the equation for the production possibilities curve? Multiple Choice
1.
Net Investment a/ is the creation of capital goodsb/ is Gross Investment less Depreciation c/ is the financial and physical assets used to make other goods d/ is the Capital Stock of a country e/ only a/ and c/ are correct
2.
A society can increase its production possibilities curve through a) Investment = Depreciation b) Net Investment c) Emigration of the Labour Force d) Technological improvement with no change in resources e) only b) and d) are correct
3.
If resources are not specialized - that is, there is perfect substitution of resources, then the opportunity cost of different output options is a/ decreasing b/ increasing c/ constant d/ zero Suppose that a production possibilities graph shows that at point A total employment of a country's resources could produce 65,000 tons of steel and 50,000 pieces of clothing, then point B with 75,000 tons of steel and 50,000 pieces of clothing is a) preferable to A and on the production possibilities curve b) not preferable to A and on the production possibilities curve
4.
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Problem Set #1: Production Possibilities Curves c) preferable to A and above the production possibilities curve d) not preferable to A and below the production possibilities curve e) preferable to A and below the production possiblilies curve 5.
A Production Possibility Curve cannot be convex to the origin because a/ resources are scarce b/ some resources are specialized c/ the output combinations would not maximize the use of specialized resources d/ output of one commodity entails opportunity cost of the other e/ resources would be unemployed
6.
Which of the following statements is not true for a Production Possibilities diagram? a) Combinations inside the Production Possibilities Curve represent unemployed resources. b) An improvement in technology which affects the output of only one commodity will increase every combination of the Production Possibilities Curve. c) An increase in resources which affects output of both commodities will increase every combination of the Production Possibilities Curve. d) A linear Production Possibilities Curve reflects constant opportunity cost e) Opportunity cost can not decrease along the Production Possibility curve.
7.
Some of one commodity must be given up to attain more of another commodity on a Production Possibilities curve because: a) resources are specialized b) resources are scarce c) opportunity cost is constant d) opportunity cost increases e) resources are interchangeable Solutions
1.a) 40 tonnes of Food b) 20 tonnes of Clothing c) D is not attainable with present resources and technology d) A is preferable since B represents unemployed resources e) A and C are both maximum output combinations so that we can't choose between them without information on societal wants f) Technological change. 2.a) b) c) d)
See Graph i) 1 unit of Qr ii) 7 units of Qr Any point below PPC PPCt on graph
e) PPCL on graph f) Opportunity Cost is constant because the resource units do not differ in output g) Resource cost is the cost measured in resources used whereas opportunity cost is the cost of the best foregone option (i.e., measured in the commodity given up)
3.a) 20 thousand tonnes of Steel. b) 2 thousand Loaves of Bread [(40 million Loaves)/20 thousand tonnes)] c) 1 million loaves of Bread cost (25,000)/(20) =5/4 thousand tonnes of Steel per million loaves. d) Steel intercept = 150 tonnes. Bread intercept = 250 Loaves -4-
Problem Set #1: Production Possibilities Curves e) Gross Investment > Depreciation => Net Investment => Capital Accumulation 4.
=> Increased PPC
Technological change has made it possible to produce much more agricultural output with the same quantities of resources, but hardly any more non-agricultural output with the same quantities of resources. The production possibility curve has shifted outward as in the diagram below. Suppose that the economy was originally at A, producing 0A of agricultural output and ON of nonagricultural output. According to Basil the new equilibrium is higher than A (increased non-agricultural output) but not much to the right of A (very little increase in agricultural output). The new equilibrium is at a point like B. This shows that there are different ways of taking advantage of increased productivity in agriculture. One way isuse the same resources to produce more agricultural output, e.g., at point C. At B, however, production of about the same quantity of agricultural output as before requires fewer resources (since productivity is up) and the left-over resources are producing extra non-agricultural output.
5.a) 1 unit of Capital Goods [(5 Capital Goods)/(5 Consumer Goods)] b) 19 units of Consumer Goods c) No opportunity cost since merely using unemployed resources d) Between options D and F. e) PPCt on graph f) PPCw on graph g) Net Investment = Capital Output - Depreciation i) Net Investment = 10 units of Capital => Increased PPC ii) Net Investment = -5 units of Capital => Decreased PPC iii) Net Investment = 0 units of Capital => No change in PPC 6.a) PPPo on graph b) PPPt on graph c) Compare Qo and Q1 d) Opportunity Cost would not change since output doubles for each commodity
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Problem Set #1: Production Possibilities Curves 7.a) Maximum Food = 1800 – 3(0) = 1800 b) Maximum Lumber = 1800/3 = 600 c) The equation is linear so opportunity Cost is constant. The opportunity cost per unit of lumber per unit is –(-3) = 3 Food. Increasing lumber from 500 to 600 units costs 100*3 = 300 units of Food. The opportunity cost per unit of food = -(1/-3) = 1/3 lumber d) The country can produce 1800 – 3(400) = 600 units of food if it produces 400 units of lumber or (1800 – 400)/3 = 466 2/3 units of lumber if it produces 400 units of food. Hence the country is below the PPC at (400, 400). There is no opportunity cost in moving from (400F, 400L) to (600F, 400L) because the economy uses unemployed resources. The country can produce (600F, 400L) but not (700F, 400L) which is above the PPC. e) This simplest numbers for calculation here are the maximum values. The output of lumber per unit of resource is 600/300 = 2. The output of food per unit of resource is 1800/300 = 6. f) e) gives us the output per unit of resource. The country would need 600/2 = 300 units of resource to produce 600L and 600/6 = 100 units of resource to produce 600F. The total resources necessary is therefore 400. g) A 50% increase in productivity for food means that maximum food (no lumber) = 1800*1.5 = 2700 and that the opportunity cost of food per unit of lumber is now 1.5*3 = 4.5. The new PPC curve has a new Food intercept of 2700 and an unchanged lumber intercept of 600 giving a slope of -4.5. The new equation is F = 2700 – 4.5L. Multiple Choice 1. b)
2. e)
3. c)
4.c)
5. c)
6. b)
7. b)
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Problem Set #1: Production Possibilities Curves Future questions 1.
Give the production possibilities for a set of inputs and then ask for the production possibilities (students have to order them maximally)
2.
Ask a better OC question for movement from a point within but not on the PPC
3.
Ask where opportunity cost is constant on a PPC curve
4
What is the opportunity cost of producing 110,000 units of Roads and 70,000 units of Health Care? _________________________ (1 mark) [given that this would be above the PPC]
5.
The production possibilies curve for a country producing lumber and food is L = 1000 –2F. a) What is the amount of lumber that this country can produce if it produces only lumber? b) What is the amount of food that this country can produce if it produces only food? c) What is the opportunity cost of increasing lumber production from 500 to 600 units? What is the opportunity per unit of increasing food production from 200 to 201 units? d) Suppose that the economy is presently producing 300 units of lumber and 300 units of food. What is the opportunity cost of producing 400 units of lumber and 300 units of food? What is the opportunity costs, relative to 300L and 300F, of producing 460 units of lumber and 300 units of food? e) Suppose that this country has 500 units of a homogeneous resource (comprised of capital, labour, and land). What is the output of lumber per unit of resource? What is the output of food per unit of resource? f) Suppose that the country would like to produce 400 units of lumber and 600 units of food. If there is no technological change, what is the minimum amount of resources needed to produce this output? f) Suppose that technological change increases the output of food per resource by 50%. Sketch the production possibility curve. What is the equation for the production possibilities curve?
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