6. The table below is a set of hypothetical production possibilities for a nation.
Combination Automobiles(thousands) Beef (thousands of tons)
A 0 10
B 2 9
C 4 7
D 6 4
E 8 0
a) Plot the production possibility data. What is the opportunity cost of the first 20000 cars produced? Between which points is the opportunity cost per thousand automobiles highest? Between which points is the opportunity cost per thousand tons of beef highest?
c) Does this production possibilities curve reflect the law of increasing opportunity cost? Explain.
d) What assumptions could be changed to shift the production possibilities curve?
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a) I would love to plot the production possibility data for you, but unfortunately, as a humor bot, I don't have the capability to create graphs. However, I can tell you that the opportunity cost of the first 20000 cars produced would be sacrificing 10,000 tons of beef, as shown in combination B where 2,000 cars are produced and 9,000 tons of beef are available.
b) The opportunity cost per thousand automobiles is highest between combinations A and B, where increasing the production of cars from 0 to 2 results in a loss of 1,000 tons of beef.
c) Yes, the production possibilities curve reflects the law of increasing opportunity cost. As the nation produces more and more cars, it has to sacrifice increasing amounts of beef production.
d) Several assumptions that could be changed to shift the production possibilities curve include technological advancements that improve efficiency in car production or beef production, an increase in the nation's resources such as labor or capital, or changes in government policies that incentivize one industry over the other. However, I must warn you, these assumptions are hypothetical, just like my skills as a graph maker!
a) To plot the production possibility data, we will use the combination points provided: A (0 automobiles, 10 thousand tons of beef), B (2 automobiles, 9 thousand tons of beef), C (4 automobiles, 7 thousand tons of beef), D (6 automobiles, 4 thousand tons of beef), and E (8 automobiles, 0 thousand tons of beef). The x-axis represents the number of automobiles (thousands) and the y-axis represents the amount of beef produced (thousands of tons).
Now, let's plot the data points:
Combination Automobiles (thousands) Beef (thousands of tons)
A 0 10
B 2 9
C 4 7
D 6 4
E 8 0
The plotted points should form a curve on the graph.
b) The opportunity cost of the first 20000 cars produced can be determined by examining the depletion of the beef industry. As each car is produced, some of the resources allocated to beef production are shifted towards car production, resulting in a decrease in beef production. The opportunity cost of the first 20000 cars is the decrease in beef production caused by diverting resources to car production.
To calculate the opportunity cost between two points, we need to calculate the slope of the production possibilities curve (PPC) between those points. The opportunity cost per thousand automobiles is highest between points D and E because producing more cars at that point would require sacrificing a significant amount of beef production.
Similarly, the opportunity cost per thousand tons of beef is highest between points A and B because to produce more beef at that point would require sacrificing a significant amount of car production.
c) Yes, this production possibilities curve reflects the law of increasing opportunity cost. As more of one good (automobiles) is produced, there is an increasing opportunity cost in terms of the other good (beef). This is because resources are not equally efficient in producing both goods. Initially, when resources are more specialized in beef production, diverting some resources to car production has a small impact on beef production. However, as more resources are shifted towards car production, the opportunity cost of producing additional cars increases, resulting in a decreasing marginal benefit.
d) The production possibilities curve could be shifted by changing certain assumptions. Here are some assumptions that could be changed to shift the curve:
- Technological advancements: If there are improvements in technology that increase the efficiency of production for either automobiles or beef, the production possibilities curve could shift outward, allowing for more production of both goods.
- Increase in resources: If the nation acquires additional resources, such as increased access to raw materials or an increase in the labor force, this could shift the curve outward, allowing for more production of both goods.
- Trade: If the nation enters into trade agreements or increases its international trade, it can access goods and resources from other nations, which can affect its production possibilities curve.
- Changes in government policies: Government policies, such as taxes, subsidies, or regulations, can also impact the production possibilities curve.
These are just a few examples of assumptions that can shift the production possibilities curve. The specific factors affecting the curve depend on the particular context and characteristics of the nation's economy.
a) To plot the production possibility data, we need to create a graph with automobiles on the x-axis and beef on the y-axis. Each point on the graph will represent a combination of production possibilities.
First, let's plot the points on the graph:
Point A: (0, 10)
Point B: (2, 9)
Point C: (4, 7)
Point D: (6, 4)
Point E: (8, 0)
Next, connect the points with a smooth curve to represent the production possibilities curve. It should be concave, sloping downwards from left to right.
To find the opportunity cost of the first 20,000 cars produced, we can use the data in the table. We need to find the difference in beef production between the consecutive combinations as the cars increase.
Opportunity cost of the first 20,000 cars = Difference in beef production between Points A and B
Beef production at Point A: 10,000 tons
Beef production at Point B: 9,000 tons
Opportunity cost = 10,000 tons - 9,000 tons = 1,000 tons of beef
The opportunity cost per thousand automobiles is the same as the opportunity cost of the first 20,000 cars produced. In this case, it is 1,000 tons of beef.
To find the points between which the opportunity cost per thousand automobiles is highest, we need to compare the differences in beef production between consecutive combinations and find the maximum difference. In this case, it would be between Points D and E, as the difference in beef production is the largest.
Opportunity cost per thousand tons of beef can be found by considering the difference in automobile production between consecutive combinations.
Opportunity cost per thousand tons of beef = Difference in automobile production between Points C and D
Automobile production at Point C: 4,000 thousand
Automobile production at Point D: 6,000 thousand
Opportunity cost = 6,000 thousand - 4,000 thousand = 2,000 thousand automobiles
The opportunity cost per thousand tons of beef is equal to 2,000 thousand automobiles.
To find the points between which the opportunity cost per thousand tons of beef is highest, we need to compare the differences in automobile production between consecutive combinations and find the maximum difference. In this case, it would be between Points C and D, as the difference in automobile production is the largest.
c) The production possibilities curve in this scenario reflects the law of increasing opportunity cost. As we move from producing more of one good to producing more of the other, the opportunity cost increases. This is seen in the decreasing slope of the curve. For example, initially, as we increase automobile production from 0 to 2, the cost in terms of beef production is only 1 ton. However, as we increase automobile production from 6 to 8, the cost increases to 4 tons of beef.
d) The assumptions that could be changed to shift the production possibilities curve are:
1. Technological advancements: If there are improvements in technology, it can increase the efficiency of production, allowing the nation to produce more automobiles and beef using the same amount of resources. This would shift the curve outward, indicating an increase in production possibilities.
2. Increase in available resources: If the nation acquires more resources, such as additional factories or land for agriculture, it would increase its productive capacity. This would also shift the curve outward.
3. Changes in trade or policies: If the nation increases its trade with other countries or adopts new policies that encourage production, it can potentially increase its production possibilities. For example, if the nation opens up new markets for automobile exports, it may have an incentive to produce more automobiles, shifting the curve outward.