(a) Budget line: $280 = $1X + $1.4Y
280 = X + 1.4Y
Y = (280 - X) / 1.4
Therefore:
Brand X | Brand Y |
280 | (280 - 280) / 1.4 = 0 |
210 | (280 - 210) / 1.4 = 70 / 1.4 = 50 |
140 | (280 - 140) / 1.4 = 140 / 1.4 = 100 |
70 | (280- 70) / 1.4 = 210 / 1.4 = 150 |
0 | (280 - 0) / 1.4 = 200 |
(b) PPF as follows.
(c) Production possibilities frontier is not bowed out because principle of increasing costs is not applicable in this case (Since PPF is a straight line, it means constant opportunity costs).
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