Question 2 (12 Marks):

CrabApple Corp has a choice to make between building iwatches and Fitbits. The board of directors for CrabApple must decide how many to produce of each product, as it has limited production facilities.

Now the board of directors has to decide what combination is right.

1. Use the table below and graph a Production

Possibilities curve on the graph below:

	Production Possibilities Curve
# of iwatches
(000s)
			# Fitbits	(000,000s)

Possibilites # iwatches (000s) #Fitbits (000,000)

A 0 75

B 1 50

C 2 30

D 3 15

E 4 5

F 5 0

b. On the graph above, label a point of underutilization (inefficiency) for the production of iwatches versus Fitbits. Call it Point A. Next, label a point of efficiency.

Call it Point B. Last, label a point that is now unattainable. Call it Point C.

c. Look at the table: To get one iWatch, how many Fitbits have to be given up (marginal cost)?

d. What is the marginal cost of 3 iWatches?

e. What is the marginal cost of 4 iWatches?

Question 3 (10 Marks):

Also referring to the production possibilities of producting iwatches versus Fitbits.

1. Calculate the cost of increasing production of Fitbits from 0 to 5 units, as measured in the amount of iWatches that would need to be sacrificed.

2. Calculate the cost of increasing production of Fitbits from 5 to 15 units, as measured in the amount of iWatches that would need to be sacrificed.

3. Calculate the cost of increasing production of Fitbits from 50 to 75 units, as measured in the amount of iWatches that would need to be sacrificed.

4. What happens to the opportunity cost as the production of iWatches increases? Illustrate with numbers.