Question

Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:

Tables Chairs 100

1. Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.

2. What is Bill’s opportunity cost of producing one additional table?

3. What is Bill’s opportunity cost of producing one additional chair?

4. Currently Bill is producing 20 tables and 40 chairs.

a. Is this allocation of resources efficient? Why?

b. Show this allocation on the graph and advise Bill how he can be more efficient.

* No hand writing or pics except what needed

* Answers have to be correct

Answer 1

1) PPF

PPF Chairs C 10 20 30 40 Tablets T

2) to Produce 10 table, give up 20 Chairs

So Opportunity Cost of 1 T = (20/10) = 2 chairs

3) Opportunity Cost of 1 C = .5 T

4) Allocation is not efficient, bcoz this point lies below the PPF

So with 20 T, 60 C could be Produced

b) so , produce 20 more Chairs, to reach to efficient level

PPF Chairs C (20,40) 10 20 30 40 Tablets T