Question 1
Given the following chart answer the questions below, assuming that all resources and
technology are fixed for this farm.
Corn(bu) Soybeans(bu)
20,000 0
16,000 5000
12,000 9000
8,000 12,000
4,000 14,000
0 15,000
A) Draw the production possibilities frontier. PLACE CORN ON THE Y AXIS
B) Is this farm able to produce 12,000 bushels of corn and 8,000 bushels of soybeans?
What does this combination of output suggest about the use of resources?
C) Is this farm able to produce 8,000 bushels of corn and 13,000 bushels of soybeans?
What does this combination of output suggest about the use of resources?
D) What happens to the opportunity cost of corn production as the farm produces more
corn?
E) What happens to the opportunity cost of soybeans production as the farm produces
more soybeans?
F) What is the opportunity cost of expanding soybean production from 12,000 to 14,000
bushels?
G) What would be the opportunity cost of producing an additional 2,000 bushels of
soybeans if this farm were currently producing 8,000 bushels of corn and 10,000 bushels
of soybeans?
Explain your answer.
H) Suppose Monsanto (a chemical and biological engineering firm) develops a new strain
of soybeans that is more disease resistant, heat and drought tolerable such that it increases
yields by 15%, what happens to the PPC?
Question 2
Pete’s a kid and his weekly allowance is $10. He spends his entire allowance between
gummi bears and chocolate.
A price of a pound of gummi bears (GB) is $2.50 and the price of a pound of chocolate is
$5
A) Graph Pete’s consumption possibilities curve (between the amount of gummi bears
and chocolate). PLACE GUMMI BEARS ON THE X AXIS
B) Can Pete buy the following combinations of gummi bears (GB) and chocolate (C)?
i) 1.5 pounds of GB and pounds of 1.5C
ii) 2 pounds of GB and pounds of 1C
iii) 3 pounds of GB and pounds of 0.75C
C) What is the opportunity cost of Pete’s:
i) first pound of gummi bears
ii) second pound gummi bears
iii) last pound of gummi bears