Practice with Production Possibilities Frontiers and ...



Dr. Claudia Strow

Practice with Production Possibilities Frontiers and Opportunity Cost

1. Suppose that the nation of Nestle produces chocolates and cookies. Below are the possible combinations of chocolate and cookies that Nestle can produce.

Combination Chocolates Cookies

A 0 10

B 2 9

C 4 7

D 6 4

E 8 0

a. Plot the Production Possibilities Frontier for Nestle.

b. What is the opportunity cost of the first 2 chocolates produced?

c. Between which two points is the opportunity cost per chocolate the

highest?

d. Between which points is the opportunity cost per box of cookie the highest?

e. Label point F at the combination of 4 chocolates and 12 boxes of cookies. What

term best describes this point?

f. Label point G at the combination of 4 chocolates and 6 boxes of cookies. What

term best describes this point?

g. Does this PPF reflect the law of increasing opportunity costs? How can we tell

graphically?

i. Draw a new curve reflecting what the PPF might look like if new cooking technology is invented to speed up production in both industries.

j. What phrase describes the movement from the initial PPF in part a to the new PPF in

part i?

2. Nestle produces chocolates and cookies. Below are the possible combinations of chocolate and cookies that Nestle can produce.

Combination Chocolates Cookies

A 0 4

B 2 3

C 4 2

D 6 1

E 8 0

a. Plot the Production Possibilities Frontier for Nestle.

b. What is the opportunity cost of the first chocolate?

c. What is the opportunity cost of the first box of cookies produced?

d. Between which two points is the opportunity cost per chocolate the

highest?

e. Between which points is the opportunity cost per box of cookies the highest?

f. Does this PPF reflect the law of increasing opportunity costs? How can we tell

graphically?

g. What term describes points A through E? Why?

h. Draw a new curve reflecting what the PPF might look like if new technology

is invented which makes labor more productive in only the cookie industry.

i. Which graph is more realistic for a PPF, the graph on this page or the graph on the front of the handout? Why?

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