Question

Production Point Mountain Bikes Beer 100 90 COOL 50 70 Refer to the table above. If North Cox decides to change production from E to D, what is the true statement? a) People laid off from mountain bikes will typically be more suited to produce beer Ob) There will be less beer produced. c) Production of both mountain bikes and beer will increase. d) Changes in production of both goods will change by the same amount.

Answer 1

If North rocks decides to change production from E to D then and the true statement is

A) people laid off from mountain bikes will typically be more suited to produce beer.

Explanation:

As the production is shifted from e to d , the production of mountain bike will decrease to 60 from 65. And the production of beer will increase from 0 to 40. So there will be more , beer production. hence, option b is not correct.

As the production of mountain bike is decreasing option c is not correct.

The decrease in the production off mountain bike is 5 whereas the increase in the the production of beer is 40. So changes in the production of both goods are not same. Hence option d is also not correct.

Now look at the marginal change of production of mountain bikes from production point starting from A upto E, as it shifts from a to b production increases 30, from b 2 c production increases 20, from c to d production increases 10, from d to e production increases only 5, these are marginal increment in production as the the production point changes. The increment production of mountain bike is very small from d to e . Now consider the production of beer, the production of beer marginally increases most for point e to d i.e. it increases by 40 units.

Hence, we can conclude that the inputs i.e. labour which are shifted from mountain bike producing industry to Beer industry, became more productive there in the beer industry, in other words people laid off from mountain bikes will be suitable to produce beer.