Sam is a skilled toy maker who is able to produce both cars and balls. He has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of his time. Choice Hours Producing Produced (Cars) (Balls) (Cars) (Balls) A 8 0 4 0 B 6 2 3 8 C 4 4 2 14 D 2 6 1 16 E 0 8 0 17 On the following graph, use the blue points (circle symbol) to plot Sam's initial production possibilities frontier (PPF). Initial PPFNew PPF012345678302520151050BALLSCARS Suppose Sam is currently using combination D, producing one car per day. His opportunity cost of producing a second car per day is per day. Now, suppose Sam is currently using combination C, producing two cars per day. His opportunity cost of producing a third car per day is per day. From the previous analysis, you can determine that as Sam increases his production of cars, his opportunity cost of producing one more car . Suppose Sam buys a new tool that enables him to produce twice as many cars per hour as before, but it doesn't affect his ability to produce balls. Use the green points (triangle symbol) to plot his new PPF on the previous graph. Because he can now make more cars per hour, Sam's opportunity cost of producing balls is it was previously.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Sam is a skilled toy maker who is able to produce both cars and balls. He has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of his time.

Choice	Hours Producing	Produced
(Cars)	(Balls)	(Cars)	(Balls)
A	8	0	4	0
B	6	2	3	8
C	4	4	2	14
D	2	6	1	16
E	0	8	0	17

On the following graph, use the blue points (circle symbol) to plot Sam's initial production possibilities frontier (PPF).

Initial PPFNew PPF012345678302520151050BALLSCARS

Suppose Sam is currently using combination D, producing one car per day. His opportunity cost of producing a second car per day is per day.

Now, suppose Sam is currently using combination C, producing two cars per day. His opportunity cost of producing a third car per day is per day.

From the previous analysis, you can determine that as Sam increases his production of cars, his opportunity cost of producing one more car .

Suppose Sam buys a new tool that enables him to produce twice as many cars per hour as before, but it doesn't affect his ability to produce balls. Use the green points (triangle symbol) to plot his new PPF on the previous graph.

Because he can now make more cars per hour, Sam's opportunity cost of producing balls is it was previously.

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PPF shows different combinations of two goods that can be produced with the given level of resources and technology.

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