Question

Poornima is a skilled toy maker who is able to produce both trains and kites. She has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of her time. Hours Producing Produced Choice (Trains) (Kites) (Trains) (Kites) 13 16 17 On the following graph, use the blue points (circle symbol) to plot Poornima s initial production possibilities frontier PPF . 30 Initial PPF New PPF

Answer 1

Below graph shows the initial PPF: Kites PPF 0 0.5 1 1.5 2 2.5 Trains 3 3.5 4 4.5 When the production is one train a day, increasing the production of train by one unit would reduce the production of kites from 16 to 13. Thus, the opportunity cost of production of producing one unit of train at combination D is 16-13 = 3 units of kites per day. When the production is two train a day, increasing the production of train by one unit would reduce the production of kites from 13 to 9. Thus, the opportunity cost of production of producing one unit of train at combination C is 13 - 9 = 4 units of kites per day. The opportunity cost of producing additional train increases from 3 to 4 units of kites. Thus, the opportunity cost of producing an additional train increased.

Below graph shows the New PPF: Kites New PPF 0 1 2 3 6 7 8 9 4 5 Trains Suppose there is technology improvement such that the production of train doubles. When 16 kites are produced, increasing the production of kites by one more unit reduces the production of train by 1 unit before the technology advancement. When 16 kites are produced, increasing the production of kite by one more unit reduces the production of train by 2 unit after the technology advancement. Thus, the opportunity cost of producing balls is higher it was previously.