Suppose an economy has a production possibility frontier characterized by the equation X2 + 4Y2 = 100

Question:

Suppose an economy has a production possibility frontier characterized by the equation

X2 + 4Y2 = 100

a. In order to sketch this equation, first compute its intercepts. What is the value of X if Y = 0? What is the value of Y if X = 0?

b. Calculate three additional points along this production possibility frontier. Graph the frontier and show that it has a general elliptical shape.

c. Is the opportunity cost of X in terms of Y constant in this economy, or does it depend on the levels of output being produced? Explain.

d. How would you calculate the opportunity cost of X in terms of Y in this economy? Give an example of this computation.

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...