HO_10_201_Sp03 - Cal Poly Pomona EC 201 Principles of...

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Cal Poly Pomona, EC 201 Principles of Microeconomics – Professor Brown Handout # 10 1) Consider an economy with workers as the only productive resource considered. Assume there are 100 workers. Suppose any worker and either produce 10 guns or 20 butter per year. Draw the PPF for this economy, which shows possible production per year. With guns on the vertical and butter on the horizontal axis. a) Label the three points on the PPF above i) all workers make guns; ii) all workers make butter; iii) 50 workers make butter and the other 50 make guns. Label the output of guns and butter for each of these three points. b) What is the slope of the PPF? ___________ c) What is the opportunity cost of: i) an additional unit of butter? ________ ii) an additional gun? __________ d) Does opportunity cost change as more of one good is produced? Would your answer change if all workers were different (instead of identical as assumed above)? e) Show how the PPF shifts if workers get better at gun production so that any one person could make 20 guns per year (or 20 butter). What happens to the opportunity cost of : butter? __________
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