Description
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Problem 1
Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:
Tables | Chairs |
0 | 100 |
10 | 80 |
20 | 60 |
30 | 40 |
40 | 20 |
50 | 0 |
- Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.
- What is Bill’s opportunity cost of producing one additional table?
- What is Bill’s opportunity cost of producing one additional chair?
- Currently Bill is producing 20 tables and 40 chairs.
- Is this allocation of resources efficient? Why?
- Show this allocation on the graph and advise Bill how he can be more efficient.
Problem 2
Suppose the market for corn is given by the following equations for supply and demand:
QS = 2p − 2
QD = 13 − p
where Q is the quantity in millions of bushels per year and p is the price.
- Calculate the equilibrium price and quantity.
- Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price.
- Calculate the price-elasticity of demand and supply at the equilibrium price/quantity.
- The government judges the market price is under expectations and announces a price floor equal to $7 per bushel.
- Would there be a surplus or a shortage?
- What would be the quantity of excess supply or demand that results?
- Use the graph to show you results.
Explanation & Answer
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Running Head: ECONOMICS PROBLEM SOLVING
Economics Problem Solving
Student Name
Name of Professor
Institutional Affiliation
Course Title
Date
1
ECONOMICS PROBLEM SOLVING
2
Problem 1
i.
The production possibilities frontier (PPF) for Bill
Bill can either produce 0 chairs and 50 tables or 100 chairs and 0 tables. Therefore, the
curve for the PPF has a horizontal intercept of 50 and vertical intercept of 100 as shown
in the graph below.
PPF for Bill
120
100
Chairs
80
60
Chairs
40
Linear (Chairs)
20
0
0
10
20
30
40
50
60
Tables
ii.
Bill’s opportunity cost of producing one additional table
= number of chairs sacrificed / number of tables produced
= 100/50 =...