Question

. Production Possibilities Frontier: Graph the following data on a production possibilities frontier curve.

Scenario Beds Sofas A 0 75 B 10 72 C 20 67 D 30 58 E 40 46 F 50 28 G 60 0

a. What is the opportunity cost of increasing the production of beds from 30 to 40?

b. What would be happening if the firm were producing 40 beds and 40 sofas?

d. What would you say about a combination of 30 sofas and 70 beds?

Answer 1

Scenarios	Beds	Sofas
A	0	75
B	10	72
C	20	67
D	30	58
E	40	46
F	50	28
G	60	0

(a) In order to increase the production of beds from 30 to 40 there is a need to decrease the production of sofa from 58 to 46.

Hence, the opportunity cost of increasing the production of beds from 30 to 40 is 8 sofas.

(b) In efficient use of resources, the firm can produce 40 beds and 46 sofas (scenario E) together.

If the firm were producing 40 beds and 40 sofas then there is inefficient use of resources.

(c) The firm can produce at a maximum of 60 sofas with 0 beds. Hence, firm can't produce 30 sofas and 70 beds together with the given amount of resources and technology.