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PS03 - EC 340 Spring 2011 Problem Set 3 1 Here is a...

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Unformatted text preview: EC 340 Spring 2011 Problem Set 3 1. Here is a production possibilities frontier with increasing opportunity cost: 100 90 70 40 10 20 30 40 Suppose that the economy starts by producing 10 units of X. What is the opportunity cost of producing 10 additional units of X? What is the opportunity cost of producing 10 additional units of X if the economy is already producing 20 units of X? If the economy is already producing 30 units of X? 2. Given the information in question 1, what can you conclude about the production of X if the price of X in terms of Y is 3? 3. In the example illustrated in question 1, does the opportunity cost of producing Y increase, decrease, or remain the same as more Y is produced? 4. Assume two goods (X and Y). Draw a production possibilities frontier and consumption possibilities for a country that imports good X when trade is permitted. (To keep the diagram uncluttered, do not illustrate autarky). Show where this economy will produce on the PPF and where it might consume on the consumption possibilities frontier. 5. Assume two goods (X and Y). Draw a production possibilities frontier and consumption possibilities for a country that imports good Y when trade is permitted. (To keep the diagram uncluttered, do not illustrate autarky). Show where this economy will produce on the PPF and where it might consume on the consumption possibilities frontier. 6. Suppose that there are 3 goods (X, Y, and Z) and two inputs (Labor and Capital). The amounts of labor and capital used to produce each of the three goods are given in the table below. Rank order the three goods in order of their capital intensity (most capital intensive, next most capital intensive, then least capital intensive). X Y Z Amount of capital per unit 1,000 4 50 Amount of labor per unit 2,000 1 40 7. What is the difference between the terms “capital abundant” and “capital intensive”? ...
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