Question

ECON 2301 Ecre to look at the instructor's lecture notes and video over the PPF model if you are ge s CA2 Spring 2019 FPC unclear about the questions Guns and Butter PPC 15 K 14 13 12 11 A 10 9 8 7 5 3 2 1 o 1 2 3 4567 8 9 10 11 12 13 14 15 16 17 18 Butter 2. Given the above graph, calculate the following. (Be sure to show your work.) Given curve ABCD, what is the marginal opportunity cost of butter over the range of point A to point B? a. Given curve ABCD, what is the marginal opportunity cost of butter over the range of point C to point D? b. Given curve ABCD, what is the marginal opportunity cost of guns over the range of point D to point C? c. d. Assume that the graph represents total production in a small country. Furthermore assume that the units represent millions of metric tons. What is being illustrated if the graph shifts from curve ABCD to curve KLMN?

Answer 1

Ans a.) Marginal opportunity cost of 1 additional unit of butter over the range A to B is 2/7 guns.

At point A, 10 units of guns are produced and 0 units of butter. At point B, 7 units of butter is produced and 8 units of guns.

To go from point A to point B, 2units of guns has to be given up to produce 7 units of butter. Therefore the opportunity cost of 7 units of butter is 2 guns. and the marginal opportunity cost of 1 unit of butter over the range A to B is 2/7.

Ans. b.) Marginal opportunity cost of 1 additional unit of butter over the range C to D is 2 guns.

Point C denotes 4 guns and 13 units of butter. and point D denotes 0 guns and 15 units of butter. So to go from point C to point D, the economy has to give up 4 units of guns for 2 additional units of butter. therefore the opportunity cost of 2 unit of butter is 4 guns. and the marginal opportunity cost is 2 guns for 1 unit of butter.

Ans c.) Marginal opportunity cost of 1 additional unit of gun over the range D to C is 1/2 butter.

This problem is just opposite of the previous problem. Point C denotes 4 guns and 13 units of butter. and point D denotes 0 guns and 15 units of butter. to go from D to C, the economy has to give up 2 units of butter in exchange of 4 units of guns. therefore the opportunity cost of 4 unit of guns is 2 units of butter. and the marginal opportunity cost is 1/2 butter for 1 unit of gun.

Ans d.) The shift in graph from ABCD to KLMN denotes the increased production capacity of the economy. Now the economy can produce more of both the goods with the same set of resources. This shift can happen due to a number of reasons such as technological advancement,increased efficiency,etc