Question

19. Refer to the information above to answer this question. Suppose that Lhanor is currently producing combination B. What is the opportunity cost of 1 more Kaldor? A) Approximately 1 Boulding. B) D) 42 Bouldings. Approximately 3 Bouldings. C) E) 54 Bouldings. 4 Bouldings. 20. Refer to the information above to answer this question. Suppose that Lhanor is currently producing combination B. What is the consequence of the production of Kaldors decreasing to 2? A) The output of Bouldings will decrease. B) The output of Bouldings will increase by 6. C) The output of Bouldings will increase by approximately 3. D) The opportunity cost of Bouldings will rise. E) The output of Bouldings will decrease by approximately 3. 21. Refer to the information above to answer this question. Which of the following statements is correct if Lhanor is currently producing 10 Kaldors and 24 Bouldings? A) All resources must be fully employed. B) 18 more units of Bouldings could be produced. This combinations of goods is not possible. C) Graphically, Lhanor is operating inside its PP curve. D)

Answer 1

1) Solution: Approximately 3 Bouldings

Working:

Combination	Kaldors	Buildings	Opportunity cost of Kadors in terms of building
A	0	60
B	4	54	(60-54) / 4 = 1.5
C	8	42	(54-42) / (8-4) = 12/4 = 3
D	12	24	(42-24) / (12-8) = 4.5
E	16	0

2) Solution: Graphically, Lhanor is operating inside its PP curve.

Working: At D combination when Lhanor is producing 24 Bouldings it is also producing 12 Kaldors; thus the combination of 10 Kaldors with 24 Bouldings indicates that Lhanor is operating inside its PP curve.