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Production Possibilities Name ___________________

Problem PPF1 (3)

For the economy of Alpha, there are 71 units of unskilled labor used to make two goods,
washers and dryers.

Quantity 1 2 3 4 5 6 7 8 9 10
Labor Used 5 12 15 26 36 45 56 71 92 122

a. Draw the production possibilities curve for an economy with 71 labor units and label it
PPC0.
b. Whats the opportunity costs of the eight worker? _________
c. Suppose immigration from Mexico brings in 21 more workers. Draw the new curve to
show the increase in labor and label it PPC1.
d. Suppose technology changes so that productivity increases the 92 labor force to an
equivalent of 122. Draw the new curve and label it PPC2.






















Sample Problem 2 Perfectly substitutable resources. Suppose that Lucy has baking
flour, cake mix, and 2 eggs. With these inputs, she can either make 10 cupcakes or 10
muffins. These resources are perfect substitutes. Lucys production possibilities curve
would be a constant cost, straight line, from 10 muffins to 10 cupcakes. This is shown
graphically below.

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Lucy has a constant cost of making cupcakes of one
muffin. Suppose Lucy is making 1 cupcake and 4
muffins. If Lucy makes one ore cupcake or 2, then
she can only make 3 muffins. Lucy has a constant
cost of 1 muffin. Likewise, If Lucy decides to make
muffins, she gives up one cupcake. If Lucy decides to
make 5 cupcakes, then she gives up 5 muffins. What
you give up is opportunity cost.




Problem PPF2 (0)

Billy Bob can either sheer sheep or shuck corn equally well. In one hour, he can sheers
20 sheep or shuck 20 bushels of corn. Draw Billy Bobs PPF below.

a. If Billy Bob just sheers sheep, how many sheep can
he sheer? _______
b. If Billy Bob just shucks corn, how many bushels
can be shuck? ________
c. Whats the opportunity cost of shucking one bushel
of corn?_____ Sheering one sheep? _____




Sample Problem 3 Increasing Opportunity Cost

In Buffoonia, guns can be transformed into butter. The PPF schedule and graph shows
the transformation. Buffoonia must give up more and more guns to get additional tubs of
butter. The cost of 5
tubs of butter is 2/5
guns. The costs
increase to 3/5, 8/5,
and 7/1.






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Problem PPF3 (0)

Willy Wonka can transform Wanks into Wongs as shown below. Answer the questions
that follow:



a. Whats the opportunity cost of making the third Wang?
___________________________

b. Explain why the resources used in making Wonks and
Wangs are not perfectly substitutable.






c. Show how the opportunity cost increases as additional
Wangs are produced.






Sample Problem 4 Efficiency

Efficiency is shown on the PPF as any point on the boundary. This is so because one
would have to give up some of Good X to get more of Good Y. Think of an iPod that
holds 100 songs. If the owner of the iPod had 50 Rap and 50 Classical songs, the owner
would have to give up one Rap song to make room for one
more Classical song. On the other hand, if the owner only
had 5 songs total, then she could add more of both songs.
Only when something must be given up to get more of
another are the resources efficient. The embedded graph
shows an inefficient point inside the PPF. At 4 MP3 players
and 2 cellphones, the user could have enjoy more of either
good without opportunity cost.





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Problem PPF4 (0)

Johan Cabooci can produce oil or watercolor paintings according the PPF below. Answer
the questions that follow.

a. Point F is not obtainable by Johan. What must happen for his
PPF to shift outward? ________________________________

b. If Johan is at Point E, could he paint more watercolors
without giving up any oil paintings? ______________

c. Johans girlfriend says that he should only paint oil paintings.
Explain why you might disagree with her. ______________




Problem PPF5 (3)

Mars can make 18 Guns and 6 Roses. Venus can make 6 Guns and 6 Roses. Currently
Mars is making and consuming 9 Guns and 3 Roses. Venus is making and consuming 3
Guns and 3 Roses. Draw their respective PPFs, identify autarky, and find the
comparative advantage of each country. Finally, assume that the two countries trade 2:1.
Draw the new trading possibilities curve.

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Solutions:























PPF2

20, 20, 1.

PPF3

3 Wonks; each Wang costs more; 1 Wang costs Wonk; 2 cost 1; 3 cost 3; costs 5

PPF4

Increase in land, labor, and capital; Yes; He should not just paint watercolors. He gives
up 5 oil paintings.








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PPF5