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1. Consider the Production Possibility Frontier (PPF) in Figure 1, which depicts an economy producing two goods, bananas and hats.
(in Attach File)
Figure 1: PPF for Hats and Bananas
(a) If the economy is producing at point b (1 unit of bananas & 5 units of hats), what is the opportunity cost of producing one more unit of bananas? How about the opportunity costs of producing two more units of bananas instead?
(b) Suppose the economy is at point a (2 units of bananas & 3 units of hats). What is the opportunity cost of producing one more unit of hats? How about two more units of hats? How about three more units of hats?
(c) Is the opportunity cost producing one more unit of bananas higher at point w or at point s? What is the economic rationale for your answer?
(d) If the economy is producing 2 units of bananas per year, how many hats should it produce in order to achieve production efficiency?
1. Consider the Production Possibility Frontier (PPF) in Figure 1, which depicts an economy producing two goods, bananas and hats.
(in Attach File)
Figure 1: PPF for Hats and Bananas
(a) If the economy is producing at point b (1 unit of bananas & 5 units of hats), what is the opportunity cost of producing one more unit of bananas? How about the opportunity costs of producing two more units of bananas instead?
(b) Suppose the economy is at point a (2 units of bananas & 3 units of hats). What is the opportunity cost of producing one more unit of hats? How about two more units of hats? How about three more units of hats?
(c) Is the opportunity cost producing one more unit of bananas higher at point w or at point s? What is the economic rationale for your answer?
(d) If the economy is producing 2 units of bananas per year, how many hats should it produce in order to achieve production efficiency?
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