The table below is a set of hypothetical production possibilities for a nation.

Combination Automobiles(thousands) Beef (thousands of tons)
A 0 10
B 2 9
C 4 7
D 6 4
E 8 0

a.)Plot the production possibility data. What is the opportunity cost of the first 20000 cars produced? Between which points is the opportunity cost per thousand automobiles highest? Between which points is the opportunity cost per thousand tons of beef highest?

c) Does this production possibilities curve reflect the law of increasing opportunity cost? Explain.

d) What assumptions could be changed to shift the production possibilities curve?

1 answer

a) To plot the production possibility data, you can create a graph with the X-axis representing Automobiles (in thousands) and the Y-axis representing Beef (in thousands of tons). Then plot the various combination points (A, B, C, D, and E) on the graph.

Opportunity cost of the first 20,000 cars produced (moving from point A to point B) is 1,000 tons of beef. This is because we give up 1 unit of beef production when we produce 2 units of automobile production. The opportunity cost per thousand automobiles is 1,000 tons/2,000 cars = 0.5 tons of beef per car.

The opportunity cost per thousand automobiles is highest between points B and C, where we give up 2,000 tons of beef to produce 2,000 cars, resulting in an opportunity cost of 1 ton of beef per car.

The opportunity cost per thousand tons of beef is highest between points D and E, where we give up 4,000 automobiles to produce 1,000 tons of beef, resulting in an opportunity cost of 4 automobiles per ton of beef.

c) Yes, this production possibilities curve reflects the law of increasing opportunity cost. As more automobiles are produced, the opportunity cost of producing additional automobiles increases, as shown by the increasing amount of beef we need to give up. This is consistent with the law of increasing opportunity costs, which states that as we increase production of one good, the opportunity cost of producing additional units of that good will also increase.

d) Several assumptions could be changed to shift the production possibilities curve:

1. Technological advancements or improvements in efficiency can increase production capabilities, shifting the curve outward.
2. An increase in available resources, such as land, labor, or capital, can also shift the curve outward by allowing for larger-scale production.
3. Conversely, a decrease in resources or a downturn in technology can shift the curve inward by decreasing production capabilities.
4. Changes in production techniques or consumer preferences can also affect the shape of the curve, causing it to become more or less curved or potentially affecting the slope.
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