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HOMEWORK 1 – ANSWER KEY 1. Consider an athletic apparel firm that produces running shoes and t-shirts. Suppose that its Production Possibilities Frontier has the following equation: T-Shirts = 300 – 2 Shoes. What is the maximum attainable amount of shoes that the firm can produce? a) 600 b) 150 c) 100 d) 300 Answer: b). To produce the maximum attainable amount of shoes, the firm will not produce any T- Shirts. Therefore, the PPF is 0=300 – 2 Shoes. Rearranging: Shoes = 300/2 = 150. 2. Consider an athletic apparel firm that produces running shoes and t-shirts. Suppose that its Production Possibilities Frontier has the following equation: T-Shirts = 300 – 2 Shoes. Consider the following production combination: 200 T-shirts, 50 Shoes. The combination is: a) Unattainable and Inefficient b) Attainable and Inefficient c) Attainable and Efficient d) Unattainable and Efficient Answer: c). Note that we can rearrange our PPF as T-Shirts + 2 Shoes = 300. If T-Shirts + 2 Shoes = 300, then the combination attainable and efficient.

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