Problem Set 2(CH2).pdf - Problem Set(CH2 KWONG Wing Kai 20513986 Problem and Applications Q2 a The graph has a bowed-out shape is because of the law of

# Problem Set 2(CH2).pdf - Problem Set(CH2 KWONG Wing Kai...

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Problem Set (CH2) KWONG Wing Kai 20513986 Problem and Applications Q2. a) The graph has a bowed-out shape is because of the law of increasing opportunity costs, since the economy moves from point H which represent production of many guns and less butter to point D which represent production of less guns and many butters. As the resources which should be used for producing guns are used in the production of butter, so that the opportunity cost of each additional unit of butter increase. Therefore, the number of guns given up producing one more unit of butter is increasing. b) Point A is impossible for the economy to achieve as it is outside production possibilities frontier. Point B is feasible but inefficient as it is inside the production possibilities frontier. c) The Hawks would choose point H, because it is with many guns and less butter. The Doves would choose point D, because it is with many butters and less guns.

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