Question

5. Opportunity cost and production possibilities Sean is a skilled toy maker who is able to produce both trans and puzzles. He has S hours a day to produce tays. The fallowing table shows the daily output resulting from variaus poss ble combinations of his time Hours Producing Choice (Trains) (Puzzles) (Tains) (Puzzies) 16 On the towowing graph, use the biue points(circle symbol) to plot Sean's initia production possibilties frontier (PPF) Suppose Sean 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 Sean is currently using combination C, producing two trains per day. His opportunity cost af praducinga third train per day i per day From the previous analysis, you can determine that as Sean increases his production af trains, his apportunity cost of producing one mare train Suppose Sean buys a new tool that enabies him to produce twice as many trains per hour as before, but it doesnt affect his ability to produce puzzies. Use the green points (trlangle symbol) to plot his new PPF on the previous graph Because he can now make more trains per hour, Sean's opportunity cost of producing puzzles is it was previously.

Answer 1

a) When Sean is producing at point D, he is producing 1 train and 16 puzzles, increasing 1 more train will decrease puzzle production to 14. hence, the opportunity cost of producing one more train is 2 puzzle.

b) From point C, the opportunity cost of producing one more train is 6 puzzles.

c) As Sean is increasing his production of trains, his opportunity cost of producing one more train is "increasing".

d) The opportunity cost of making puzzle "less / decreased" as it was previously.