Question

2. Production Possibilities Frontier: Screwdrivers and Bloody Marys Set-up: Screwdrivers contains: orange juice and one shot of vodka Bloody Mary contains: tomato juice and one shot of vodka Assumption: plenty of either juice, but only one small bottle of vodka (6 shots) a. (0.5 pt) Create the PPF: Screwdrivers on the vertical axis Bloody Marys on the horizontal axis Label the vertical and horizontal axes numerically To get the x-intercept: "How many Bloody Marys could be made, if you only made Bloody Marys?" To get the y-intercept: "How many Screwdrivers could be made, if you only made Screwdrivers?" b. (0.1 pt) What type of slope does the PPF have? Positive or Negative c. (0.1 pt) What kind of a relationship does the PPF have? Direct or Inverse d. (0.3 pt) Could you make 6 of both drinks (label this point F on the graph)? Yes or No How would you describe this point F? Feasible or Not Feasible e. (0.4 pt) Could you make 2 of both drinks (label this point E on the graph)? Yes or No Are you using all of your resources? Yes or No How would you describe this point E? Efficient or Inefficient f. (0.1 pt) If you were originally producing 3 Bloody Marys & 3 Screwdrivers and wanted to now make 4 Screwdrivers, what would be the opportunity costs? g. (0.1 pt) Give an example of something that might cause this PPF to shift out.

Answer 1

The combination of screwdrivers and Bloody Mary which can be produced, given 6 shots of vodka are below: Screwdrivers Bloody Mary 6 0 4 2 2 I 4 06 PPF is below: PPF 1 / 2 3 4 5 6 7 Slope of PPF is negative, because given the fixed quantity of input (vodka), a trade off exists between production of screwdriver and Bloody Mary. In order to produce an additional unit of one good, more of another good needs to be sacrificed.

Inverse relationship (because of negative tradeoff between the two) No. 6 of both drinks cannot be made as it lies outside the PPF Thus, point F is not feasible Yes. 2 of both drinks can be made as it lies inside the PPF Thus, point E is feasible but it is not efficient In order to increase production of Screwdriver by 1 unit, production of Bloody Mary will have to be decreased by 1 unit Thus, opportunity cost of production = 1 Bloody Mary A technological improvement which increases the efficiency of the production process which help increase production of both goods, thereby shifting the PPF to the right.