Introduction to the American Economy

Assignment #2: Production Possibilities Analysis

Furniture United, Inc. produces wooden chairs and tables in a small factory in Northern

Wisconsin. Most of the output is shipped to local furniture stores which sell to cabin owners

who like the "rustic" look in their summer homes. The capacity of the factory is limited by the

size of the building and the machinery available. Following is an estimate of the possible

combinations of chair and table output per day:

Chairs

Tables

0

45

20

40

40

30

60

0

Based on the above information answer the following questions

. Be sure to explain your

answers and show calculations in the questions where a calculation was necessary to arrive

at an answer. Remember, one sentence is not an explanation.

A.

Does the production schedule reflect the Law of Diminishing Returns? (Hint: Correct

answer is yes but your grade is based on the explanation you provide)

B.

Assume the factory is currently producing 40 chairs and 30 tables and an order comes in

for 5 more tables. What is the opportunity cost of producing 5 more tables?

C.

Assume the factory is producing 15 chairs and 35 tables. What problem is the company

facing?

D.

A rush order comes in asking for 50 chairs and 35 tables. What problem will the

company have in filling the order?