Question

Draw in a paper a production possibility frontier with two products A and B showing increasing opportunity cost of one product in terms of the other.

1. On the graph, identify the area of feasible outcomes and the area of infeasible outcomes.
2. On the graph, label a point that is efficient and a point that is inefficient.
3. On the graph, illustrate what happen if there is a discovery of a resource needed to make both products A and B, in this economy. There will be a change with the line Number 1

Answer 1

Godan leible outume feasible outcome PP tot God B Cencave shape PPE reflects the increasing opportunity Cest. Arm inside the PPF are feasible outcome. Area outside the PPE are infeasible outcome Ang point inside the PPF are inefficient (like point x) Any point on the PPE are efficient Clike point y). There will be right ward shift of Ppr from PPEo to PPEL if resources to make both products A and B discovered.