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Midterm Practice1

Midterm Practice1 - Econ 1 Winter 2008 Dr Narag 1...

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Econ 1 Winter 2008 Dr. Narag 1 Additional Practice Questions: Chapter 1-4 (1) You have recently purchased a large estate in Napa valley and are deciding how to use your land. You can either grow grapes or raise llamas (both of which are actually done in Napa.) Your land includes flat, loamy areas which are excellent for grapes, as well as more rocky, hilly areas which are less good for grapes. Llamas can be grazed on any of the land equally well. You know that you can produce the following combinations of grapes and llamas, depending on how much land you use for grapes and how much for llamas. Llamas Grapes (bushels) 0 125,000 200 115,000 400 95,000 600 70,000 800 40,000 1000 0 a) Draw the production possibility frontier that you face for grapes and llamas. b) You decide to raise 200 llamas and grow 115,000 bushels of grapes. What is the opportunity cost of these 200 llamas? c) Explain why the ppf is bowed outward. d) You plan to sell the wool from the llamas as well as all the grapes that you grow. The wool from each llama can be sold for $120 apiece and grapes can be sold for $1 per bushel. Could you make more revenue by shifting your production toward more
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