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Economics

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User Generated
Subject
Economics
School
Saudi electronic university
Type
Homework
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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
1) Construct the production possibilities frontier (PPF) for Bill. Put tables on the
Horizontal axis and chairs on the vertical axis.
2) What is Bill’s opportunity cost of producing one additional table?




 
 
 

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3) What is Bill’s opportunity cost of producing one additional chair?




 
 
 
4) Currently Bill is producing 20 tables and 40 chairs.
a) Is this allocation of resources efficient? Why?
The allocation is not efficient because this production, the (20, 40) point, lies below the PPF curve.
b) Show this allocation on the graph and advise Bill how he can be more efficient.
To achieve efficiency, Bill should produce 20 more chairs. His production should be 60 chairs and
40 tables so that it can lie on the PPF curve perfectly.

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This message/document has been classified as “Internal” 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 1) Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis. 2) What is Bill’s opportunity cost of producing one additional table? 𝑂𝑝𝑝𝑜𝑟𝑡𝑢𝑛𝑖𝑡𝑦 𝑐𝑜𝑠𝑡 = 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐ℎ𝑎𝑖𝑟𝑠 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑎𝑏𝑙𝑒𝑠 𝑂𝑝𝑝𝑜𝑟𝑡𝑢𝑛𝑖𝑡𝑦 𝑐𝑜𝑠𝑡 = 40 − 20 20 − 10 𝑂𝑝𝑝𝑜𝑟𝑡𝑢𝑛𝑖𝑡𝑦 𝑐𝑜𝑠𝑡 = 2 𝑐ℎ𝑎𝑖𝑟𝑠 This message/document has been classified as “Internal” 3) What is Bill’s opportunity cost of producing one additional chair? 𝑂𝑝𝑝𝑜𝑟𝑡𝑢𝑛𝑖𝑡𝑦 𝑐𝑜𝑠𝑡 = 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑎𝑏𝑙𝑒𝑠 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐ℎ𝑎𝑖𝑟𝑠 𝑂𝑝𝑝𝑜𝑟𝑡𝑢𝑛𝑖𝑡𝑦 𝑐𝑜𝑠𝑡 = 20 − 10 40 − 20 𝑂𝑝𝑝𝑜𝑟𝑡𝑢𝑛𝑖𝑡𝑦 𝑐𝑜𝑠𝑡 = 0.5 𝑡𝑎𝑏𝑙𝑒𝑠 4) Currently Bill is producing 20 ...
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