Question

5) Table 1.1 shows the tradeoff between different combinations of missile production and home construction, ceteris paribus. Complete the table by calculating the required opportunity costs for both missiles and houses. Then answer the indicated question(s). Combination Number of houses Opportunity cost | of houses in terms of missiles Number of missiles Opportunity cost of missiles in terms of houses 10,000 17,000 21,000 23,000 M N In Table 1.1, what is the opportunity cost of increasing the production of missiles from 2 to 3 in terms of houses? A) 3,333 houses. B) 1,000 houses. C) 17,000 houses. D) 5,000 houses.

Answer 1

1) Solution: 5,000 houses

Explanation: When two missiles are built then 17,000 houses are built; and when three missiles are built, 10,000 houses are built. Thus we can conclude that 7,000 houses are sacrificed for producing an additional missile. However 7,000 houses is not given in the available options, thus we are choosing the nearest option

2) Solution: is an efficient means of communicating consumer wants to producers

Explanation: The market mechanism uses prices as a means for an effective communication among the consumers and producers.