Question

Opportunity cost and production possibilities 

Gilberto is a skilled toy maker who is able to produce both trains and kites. He has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of his time. 

	Hours Producing		Produced
Choice	(Trains)	(Kites)	(Trains)	(Kites)
A	8	0	4	0
B	6	2	3	10
C	4	4	2	16
D	2	6	1	19
E	0	8	0	20

On the following graph, use the blue points (circle symbol) to plot Gilberto's initial production possibilities frontier (PPF). 

Suppose Gilberto is currently using combination D, producing one train per day. His opportunity cost of producing a second train per day is _______ per day. 

Now, suppose Gilberto is currently using combination C, producing two trains per day. His opportunity cost of producing a third train per day is _______ per day. 

From the previous analysis, you can determine that as Gilberto increases his production of trains, his opportunity cost of producing one more train _______ 

Suppose Gilberto buys a new tool that enables him to produce twice as many trains per hour as before, but it doesn't affect his ability to produce kites. Use the green points (triangle symbol) to plot his new PPF on the previous graph. 

Because he can now make more trains per hour, Gilberto's opportunity cost of producing kites is _______ it was previously.

Answer 1

Intital PPF = last two columns

New PPF = first and last column

Blanks:-

1) 19-16 =3 kites

2) 16-10 =6 kites

3) Increases

4) Higher than