Question

The following table is the production possibilities for a 1000 acre farm that can grow wheat or cotton. Identify the correct statement below.

Wheat production (Bushels) | Cotton Production (pounds)

0 | 800,000

10,000 | 740,000

20,000 | 660,000

30,000 | 550,000

40,000 | 410,000

50,000 | 230,000

60,000 | 0

a- wheat production does not have an opportunity cost

b- marginal opportunity costs are increasing as the farmer increases wheat production

c- cotton technology is increasing as wheat production decreases

d- the farmer could produce 900,000 pounds of cotton if the wheat technology changed (increased)

Answer 1

Answer

The correct answer is (b) marginal opportunity costs are increasing as the farmer increases wheat production

We can see from above table that in order to produce more wheat we have to produce less cotton or we have to sacrifice Cotton and hence Wheat has Opportunity cost. Initially in order to produce 10000 wheat we have to sacrifice 800,000 - 740000 = 60,000 cotton. From 10000 to 20000 wheat we have to sacrifice 740000 - 66000 = 80,000 Cotton. Hence similarly for other . This implies Marginal opportunity cost is increasing as the farmer increases wheat production. Hence option (b) is correct.According to definition of PPF, technology remains same and hence. It is given that with given technology of wheat it can maximum produce 800000 cotton and whatever be the technology of wheat, it can maximum produce 800000 cotton. Hence option (d) is also incorrect.

Hence the correct answer is (b) marginal opportunity costs are increasing as the farmer increases wheat production