PPF Recap - What are all the possible combinations of...

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Production Possibility Frontiers Example One: No Input Levels to Consider Guns Butter The PPF shows all possible combinations of production. 24 0 It makes three important assumptions: 20 10 1. Full utilization of resources 16 19 2. Fixed amounts of resources 12 27 3. Fixed level of technology 8 33 4 37 0 39
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Example Two: Expansion in Technology. Assume that a new technology improves the production of butter, but cannot be applied to the production of guns. Guns Butter New Levels of Butter 24 0 0 20 10 15 16 19 28.5 12 27 40.5 8 33 49.5 4 37 55.5 0 39 58.5
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Example Three: Impact of Varying Levels of Resources Guns Labor Butter Labor 24 3000 0 0 20 2500 10 500 16 2000 19 1000 12 1500 27 1500 8 1000 33 2000 4 500 37 2500 0 0 39 3000 Assume the level of labor is fixed at 2500.
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Unformatted text preview: What are all the possible combinations of production? Guns Butter Total Labor Guns Butter Total Labor 20 0 2500 + 0 = 2500 16 0 2000 + 0 = 2000 16 10 2000 + 500 = 2500 12 10 1500 + 500 = 2000 12 19 1500 + 1000 = 2500 8 19 1000 + 1000 = 2000 8 27 1000 + 1500 = 2500 4 27 500 + 1500 = 2000 4 33 500 + 2000 = 2500 0 33 0 + 2000 = 2000 0 37 0 + 2500 = 2500 In table above we look at combinations if labor shrinks to 2000 PPF Recap You should be able to answer these questions about the PPF. You do NOT need to submit your answers. I. What does the PPF represent? II. What assumptions are made when we draw a PPF? III. Why is the PPF shaped the way it is (convexed)? What important economic theory does this demonstrate? IV. What does a shift in the entire PPF result from?...
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PPF Recap - What are all the possible combinations of...

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