PROBLEM SET 1

PROBLEM SET 1 - PROBLEM SET 1 Scarcity and the Production...

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Unformatted text preview: PROBLEM SET 1 Scarcity and the Production Possibilities Curve Department of Economics Professor William J. Stull Temple University Economics 1902 A. Rosencrantz Only two goods are produced in the country of Rosencrantz, coffee and Danish. The daily production possibilities schedule for these goods is given below. Coffee (Pots) Danish (Boxes)--------------- ------------------ 0 40 1 36 2 30 3 22 4 12 5 0 1. Graph Rosencrantzs production possibilities curve (PPC) in Figure A using these data. (Put Danish on the horizontal axis and be sure the scale extends to 60.) 2. What is the opportunity cost of increasing coffee production in this economy from 2 pots to 3 pots? _______________ 3. The opportunity cost of increasing Danish production from 30 to 40 boxes is _____________ 4. True or False: Given existing resources, institutions, and technology, Rosencrantz can produce 2.5 pots of coffee and 15 boxes of Danish. ____________ _ 5. True or False: Given existing resources, institutions, and technology, Rosencrantz can produce 4.5 pots of coffee and 32 boxes of Danish. _______________ 6. Mark the preceding two production points on your graph in Figure A. 7. True or False: Rosencrantzs PPC exhibits the law of increasing cost. ____________ _ 8. A new baking technique is discovered which increases Danish production by 50% holding resources constant. The new technique costs exactly the same as the old. Draw in the new Rosencrantz PPC in Figure A. Figure A B. Guildenstern The country of Guildenstern also produces only two goods: oatmeal (Y) and operas (X). Both are produced with labor only. It takes 10 units of labor to produce a ton of oatmeal and 50 units of labor to produce an opera. Guildensterns annual labor supply is 1000 units....
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This note was uploaded on 04/28/2011 for the course ECON 1102 taught by Professor Tomczyk during the Spring '09 term at Temple.

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PROBLEM SET 1 - PROBLEM SET 1 Scarcity and the Production...

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