Question
Dina is a skilled toy maker who is able to produce both cars and puzzles. She has 8 hours a day to produce toys. The
Dina is a skilled toy maker who is able to produce both cars and puzzles. She has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of her time.
Choice | Hours Producing | Produced | ||
---|---|---|---|---|
(Cars) | (Puzzles) | (Cars) | (Puzzles) | |
A | 8 | 0 | 4 | 0 |
B | 6 | 2 | 3 | 10 |
C | 4 | 4 | 2 | 16 |
D | 2 | 6 | 1 | 18 |
E | 0 | 8 | 0 | 19 |
On the following graph, use the blue points (circle symbol) to plot Dina's initial production possibilities frontier (PPF).
Initial PPFNew PPF012345678302520151050PUZZLESCARS
Suppose Dina is currently using combination D, producing one car per day. Her opportunity cost of producing a second car per day is per day.
Now, suppose Dina is currently using combination C, producing two cars per day. Her opportunity cost of producing a third car per day is per day.
From the previous analysis, you can determine that as Dina increases her production of cars, her opportunity cost of producing one more car .
Suppose Dina buys a new tool that enables her to produce twice as many cars per hour as before, but it doesn't affect her ability to produce puzzles. Use the green points (triangle symbol) to plot her new PPF on the previous graph.
Because she can now make more cars per hour, Dina's opportunity cost of producing puzzles is it was previously.
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