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Unformatted text preview: Econ 1 Winter 2008 Dr. Narag 1 Homework 1: Production Possibilities (1) Suppose Jane's production possibility frontier (PPF) for corn and cloth is initially described in the following table: Possibility A B C D E F Corn (1 lbs./mo.) 20 18 15 11 6 0 Cloth (yds/mo.) 0 1 2 3 4 5 a) Draw Jane's PPF and explain what this curve represents. b) Determine the opportunity costs associated with moving from point A to point B, B to C, C to D, D to E, and E to F. Are the opportunity costs you determined increasing, decreasing, or constant? Explain your answer. c) Now, assume that a change in weather conditions enables Jane to produce higher yields of corn as shown below: Possibility A B C D E F Corn (lbs./mo.) 140 130 120 100 60 0 Graph the new production possibility curve. You may add it to your graph in part (a). d) Calculate Jane's new opportunity costs associated with moving from point A to point B, B to C, C to D, D to E, and E to F. Are the opportunity costs you determined increasing, decreasing, or constant? Explain your answer. e) Compare your answers to (b) and (d). Have Jane's opportunity costs gone up, down, or remained the same? Explain your answer. Econ 1 Winter 2008 Dr. Narag 2 (2) In Mexico each unit of a resource can produce either one professional computer (with business and scientific applications) or three computer-game systems. Mexico has 100,000 units of this resource. a. Draw Mexico's production possibilities curve for these two products. b. What is the opportunity cost of one professional computer? One computer-game system? Is the production of professional computers subject to the law of increasing costs? Why or Why not? c. Explain (verbally and graphically) how each of the following events will effect (or not effect) Mexico's production possibility curve. 1) A previously idle plant that makes only computers is back in operation. 2) A new technique is discovered for producing computer-games with fewer materials. 3) Because of a declining birthrate, the country's working-age population shrinks. 4) Average educational attainment of the population increases by one year. ...
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This note was uploaded on 03/20/2008 for the course ECON 1 taught by Professor Nagata during the Fall '08 term at UCLA.

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