The Production Possibilities Frontier The country of Romopolis is a small island nation known for its warm climate and delicious pasta dishes. For simplicity, let us initially assume that the nation only produces two different goods: pizzas and calzones. Pizzas Calzones The table to the right shows some of the maximum output combinations which Romopolis is able to produce in a day given its current resources and technology. 1,000 4,500 1. Suppose the country is currently producing 2,000 pizzas and 3,000 calzones per day. 2,000 3,000 How many calzones must be given up in order to produce an additional 1,000 pizzas? 3,000 1,500 calzones. Use this information to complete the table to the right. 2. Conversely, what is the opportunity cost of producing an additional 1,500 calzones? / 0 0 pizzas 3. Assuming that the nation devotes all of its resources towards producing only one of the two goods: What is the maximum number of pizzas the country is capable of producing each day? What is the maximum number of calzones the country is capable of producing each day? 4. Given the five possible output combinations above, graph all of the country's efficient output combinations below and label the line which represents all of these potential points PPF1. 5. Choose a point which would be consistent with the description below then plot and label it on your graph: A) A possible combination of pizzas and calzones which would be considered to be productively efficient. Pizzas Calzones B) A combination which is attainable but does not make efficient use of the country's resources. Pizzas Calzones C) Plot the point corresponding to the production of 2,500 pizzas and 3,750 calzones and label it C. Is this output combination currently feasible given Romopolis' resources and technology? [ Yes / No ] 6. Calculate the per unit opportunity cost of a single pizza. The cost of one pizza is calzones Calculate the per unit opportunity cost of a single calzone. The cost of one calzone is pizzas Calzone Production Romopolis' PP 7500 7. Suppose the country of Romopolis invents a new type of high-efficiency oven which is capable of producing both 6750 pizzas and calzones much more quickly than before. 6000 The adoption of this new technology boosts the country's 4500- maximum pizza production by 1,000 per day (when they 3750 choose to devote all resources towards making pizzas) and its maximum calzone production by 1,500 per day (when only calzones are produced). 1500- Plot these new endpoints and graph Romopolis' new PPF after 750 the invention of this miraculous new oven. Label this line PPF2. 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 Pizza ProductionName:_ A few years go by and Romopolis' maximum pizza production expands to 5,000 per day as it acquires some new chefs and ovens. In addition, the dictator of the country begins to question whether or not it is in the best interest of his country (and his citizens' waist-lines) to produce nothing but pizza dishes. As such, he begins to consider splitting his country's production between pizzas and computers and orders you and his other economists to examine the trade-offs involved with producing computers instead of calzones. After crunching the numbers you come up with the following potential points which are productively efficient: 8. Begin by plotting each of these points on the graph below and label this PPF3. Point Pizzas Computers A 5,000 0 9. Assume that the country is initially operating at point A B 4,500 100 and producing all the pizzas they can and zero computers. C 3,500 200 D 2,000 300 Examine the opportunity cost associated with producing more computers: E 0 400 What is the opportunity cost of producing the first 100 computers? pizzas What is the opportunity cost of producing the next 100 computers? additional pizzas What is the opportunity cost of producing the third 100 computers? additional pizzas What is the opportunity cost of producing the last 100 computers? additional pizzas 10. What is happening to the opportunity cost of producing computers as the country attempts to produce more and more of them? How is this different from the previous scenario when the country was producing calzones? In order to produce more computers, the country must give up [ more / fewer ] additional pizzas. As such, the country is said to be experiencing [ increasing / constant / decreasing ] opportunity costs. Graphically this is represented by the country's PPF diagram having a [ bowed-out / straight-line ] shape. 11. Suppose that your citizens become upset about Romopolis' PPF computers slaving away under a pasta-obsessed dictator and 600- many of them protest by spending their days lounging 550- on the beach instead of producing computers and 500- pizzas. Plot a possible output point that might result 450- in such a situation and label it point F. 400- 12. Suppose that a rival nation, The Republic of 350- Wadiya, sabotages your country's production efforts by hacking your computer assembly lines. The rogue 300 hackers create technical difficulties and cause 250 Romopolis to only be capable of producing half as 200- many computers at every point as compared to your 150 initial projections (pizza production is unaffected). 100- Plot the new curve representing the country's 50 efficient production possibility frontier after the hackers strike and label this PPF4. 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 Pizzas