Question

Figure 3-1 Paul CHE Wheat Wheat 10 Com Com Refer to Figure 3-1. Suppose Cliff must work 5 hours to produce each bushel of corn. Then Cliff O a. must work 3 1/3 hours to produce each bushel of wheat, and his opportunity cost of a bushel of corn is 2/3 bushel of wheat. O b. must work 3 1/3 hours to produce each bushel of wheat, and his opportunity cost of a bushel of corn is 1.5 bushels of wheat. O c. must work 7.5 hours to produce each bushel of wheat, and his opportunity cost of a bushel of corn is 1.5 bushels of wheat. O d. must work 7.5 to produce each bushel of wheat, and his opportunity cost of a bushel of corn is approximately 2/3 bushel of wheat.

Answer 1

Solution:

1. If Cliff must work 5 hours for a bushel of corn, and given the production possibility frontier, as maximum of 4 bushels of corn can be produced, total number of hours available with Cliff = 5*4 = 20 hours. Further, given maximum wheat that can be produced = 6 bushels, with 20 hours available, it means that each bushel of wheat production takes (20/6 =) 10/3 or 3 1/3 hours.

Opportunity cost of a bushel of corn (= slope of PPF) = per unit labor requirement for a bushel of corn/per unit labor requirement for a bushel of wheat

Opportunity cost of corn = 5/(10/3) = 15/10 or 1.5 bushels of wheat

Thus, correct option is (b).

2. The opportunity cost of wheat = 1/opportunity coat of corn

Using above part, for Cliff then opportunity cost of wheat = 1/1.5 = 2/3 bushels of corn

Thus, correct option is (d).