Question # 1

Production point

Pages typed

Web pages created

A

0

and

4

B

40

and

3

C

70

and

2

D

90

and

1

E

100

and

0

(a) Jean can either type her term paper or create Web pages during the limited time she has available. The table above shows her PPF.[02]

(i)Can Jean type 90 pages and create 2 Web pages?

(ii)Use the above numbers to calculate the opportunity cost of a typed page as she increases her time typing and decreases time creating a Web page.

(b) Mary takes 4 minutes to make a sandwich and 6 minutes to mix a cocktail. Her sister Ash takes 4 minutes to make a sandwich and 4 minutes to mix a cocktail. Calculate each sister's opportunity cost. Which of the two sisters has an absolute advantage in making sandwiches? In mixing cocktails? Which of the two has a comparative advantage in making sandwiches? In mixing cocktails?[01]

(c) "If an economy is producing at a point on its PPF, it has achieved allocative efficiency." True or false? Explain.[01]

(d) What is the relationship between the bowed out shape of the production possibilities frontier and the increasing opportunity cost of a good as more of it is produced?