Figure 3-4

Question

A pair of linear production possibilities frontier curves of lemonade versus pizzas for two individuals, Alice and Betty. Alices linear production possibilities frontier curve for lemonade versus pizzas is a straight line that connects point (0, 400) to point (200, 0).

Bettys linear production possibilities frontier curve for lemonade versus pizzas is a straight line that connects point (0, 450) to point (300, 0).

Refer to Figure 3-4. Both Alice and Betty
a. would benefit from specializing in pizza production.
b. would benefit from specializing in lemonade production.
c. can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production.
d. face a constant trade-off between producing pitchers of lemonade and pizzas.

Answer 1

Based on the description of the production possibilities frontier (PPF) for Alice and Betty, we can analyze their production capabilities for lemonade and pizzas.

1. Alice's PPF goes from (0, 400) for lemonade to (200, 0) for pizzas, meaning:

   • If she produces only lemonade, she can make 400 pitchers.
   • If she produces only pizzas, she can make 200 pizzas.

2. Betty's PPF goes from (0, 450) for lemonade to (300, 0) for pizzas, meaning:

   • If she produces only lemonade, she can make 450 pitchers.
   • If she produces only pizzas, she can make 300 pizzas.

Given this information, let’s evaluate the options:

a. would benefit from specializing in pizza production.
This statement is not necessarily true for both individuals as it depends on their comparative advantages. Without additional information on their opportunity costs, we cannot conclude that specializing in pizzas is beneficial for both.

b. would benefit from specializing in lemonade production.
Similar to option (a), we can’t definitively say that both would benefit from specializing in lemonade without more information on their respective opportunity costs.

c. can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production.
This statement is true for both individuals. Alice can produce 200 pizzas and 0 pitchers of lemonade if she specializes in pizza, and Betty can produce 300 pizzas and 0 pitchers of lemonade. Thus, it is accurate to say they can produce more pizzas than lemonade if they focus entirely on pizza production.

d. face a constant trade-off between producing pitchers of lemonade and pizzas.
This statement is true. Since both individuals have linear PPFs, they face a constant opportunity cost as they trade off between lemonade and pizzas.

Based on this analysis, the most appropriate answers would be:

• c. can produce more pizzas than pitchers of lemonade if they devote all of their time to pizza production.
• d. face a constant trade-off between producing pitchers of lemonade and pizzas.

If you need to select just one option, I would choose d, as it is inherently true for both individuals due to the linear nature of their PPFs. However, c is also a correct statement.