Professional Documents
Culture Documents
Economics (MCR001)
Tutorial Homework Exercise for Lecture 1 (Introduction + PPF)
Ans: Scarcity
2. Resources
What are the “factors of production” and how are they related to the income for the owners of these
resources?
Ans: The four factors of production are _______, _________, _________ and __________.
1
Page
2
3. An opportunity cost is the total cost of all other alternatives foregone whenever a choice is made.
(True or false).
4. From 9A.M to 11 A.M., Candy can sleep in, go to her economics lecture, or go out with her
boyfriend. Suppose that Candy decides to go to the lecture but thinks that, if she hadn’t, she would
otherwise have slept in. What is the opportunity cost for Candy when she decided to go to the
economic lecture? (Ans: sleep in or go out with her boyfriend?)
Ans: The opportunity cost of going to the lecture is sleeping in (the best opportunity foregone).
Ans: Allocative efficiency is achieved when MR = MC, ie when the consumption of beer is 4 units,
MR = MC; MR = 3, MC =3
2
Page
3
A B C D
Cheese 0 35 55 60
Butter 50 40 20 0
Cheese
a. State the production levels for this economy at Point B and Point C.
***
b. If the economy is operating at point C, the opportunity cost of producing an additional 20 units of butter is:
(**Hints: Opportunity cost equals the quantity of goods you must give up divided by the quantity of
goods you will gain).
Ans:
Butter gained from 20 to 40 = + 20
Cheese forgone from 55 to 35 = - 20
Therefore the Opportunity Cost = cheese foregone ÷ butter gained = 20 ÷ 20 = 1
That means, 1 unit of butter for 1 unit of Chess
d. As we move from point A to point D, the opportunity costs of cheese in terms of butter fall / remain
unchanged / rise.
Ans: The opportunity cost increases as we increase production of one goods.
3
Page
4
mango
7. Below is a production possibilities table for coffee and mangos:
A B C D E F
Coffee 0 1 2 3 4 5
mango 10 8 6 4 2 0
coffee
a. State the production levels for this economy at Point B and Point C.
Ans: Point B: 1 coffee, 8 mangos
b. Sketch the PPF with coffee on the x axis and mango on the y axis.
c. In the above PPF for Coffee and mangos, the opportunity cost of coffee when moving from A to B is:
(**Hints: Opportunity cost equals the quantity of goods you must give up divided by the quantity of
goods you will gain).
d. In the above PPF for Coffee and Mango, the opportunity cost of coffee when moving from E to C is:
8. Why is this PPF (coffee & mango) a straight line compared to the previous PPF (butter and cheese)? What
does the shape of the PPF tell us?