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# handout-1 - calculators when the total number of men...

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1 1 Handout 1: Production Possibilities A certain economy only produces two goods, calculators (C) and tea (T). To manufacture these goods, it has three kinds of resources: (1) a fixed quantity of capital, useful only in producing calculators; (2) a fixed quantity of land, useful only in producing tea; and (3) a fixed quantity of labor of 100 men (M) capable of working in either occupation. The table below indicates the amounts of calculators and tea that can be produced when varying amounts of labor work with the specialized resources, calculators and tea. Number of men Daily production of calculators Number of men Daily production of tea 0 0 0 0 10 40 10 5 20 105 20 12 30 200 30 20 40 300 40 28 50 390 50 36 60 450 60 43 70 500 70 49 80 550 80 54 90 580 90 58 100 600 100 60 1. Draw this economy’s production-possibility curve. (Be careful to label axes. Use of graph paper will enable your graph to be more accurate.) 2. According to the table above, diminishing returns first appear in the production of

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Unformatted text preview: calculators when the total number of men employed rises to : Explain what causes this diminishing returns phenomenon briefly. 3. What is the opportunity cost of producing 200 calculators instead of 40? Explain the concept of opportunity cost briefly. 2 2 4. Assume that the production possibility curve above exists in 1985. Assume further that the following (separate) events took place between 1985 and 2000. Other things being equal, explain carefully how the production possibility curve would be altered. a) The use of robotics technology is introduced into computer industry. b) A strain of virus destroys a large percentage of tea plants worldwide. c) Improved harvesting methods are employed in the tea industry. d) Population growth continues at current positive rates over this period....
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