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EC101P12b - EC 2001 Problem Set No 1 Please note that this...

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EC 2001 Problem Set No. 1 Please note that this problem set will be helpful with questions requiring practice with "pencil and paper", but there is of course additional material, requiring verbal and graphic analysis, with which you should be familiar, but which is not included in the problem set. (1) Assume the production-possibilities table (PPT) below represents the economy of Balkania. Answer the following questions based on this information. A B C D E F Drill Presses 7 5 7 0 6 0 4 5 2 5 0 Food (tons) 0 1 0 2 0 3 0 4 0 50 (a) If Balkania is currently operating at "C" in its PPT, what is the opportunity cost of one (additional) ton of food? Of one drill press? (b) If instead Balkania is currently producing 20 tons of food and 40 drill presses, what is the opportunity cost of one ton of food now? Explain . (c) If Balkania is producing the output mix in (b), that is, 20 tons of food and 40 drill presses, what can be said about economic situation of Balkania? Explain. (d) If Balkanians ask their "production board" to produce 30 tons of food and 50 drill presses, what would/should their response be?
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