Homework 1 Production Posibiliies and Opportunity Cost: Linear Model veru Non-Li

Question

Homework 1 Production Posibiliies and Opportunity Cost: Linear Model veru Non-Lisear Model Production Possibilities: Refining the Model Timber (units/year) 20 10 9 10 15 Food (units year) m the linear production posibilities modal. w.ssuna ach of five equally-sized parcels of land contibutes the same to the production of food and timbesr: 6 units of timbar or 3 anits of food By contrast, in the 20n-linear model, w will assume that tara are fre differe at types of land in equal- izad plots and that each plot may contribute as follows to the prodaction of BE ible timbar B. Good farmland Pocr timbarland Modaate farmland Modarate Poor farmiand Good timbarhud Terible farmld/ Great timbar 1. Assuming all parcels ofland areswhon all lad is inue, ons mcre unit of timbar produced will roquir A. Two more units of food produced B. Fivefawer units of food produced C. One-olf fawer units of sood producad D. Two fawer units of food produced

Explanation / Answer

(1) (C)

Here, opportunity cost = Slope of linear PPF = - 15/30 = - 1/2 Food

So, increase of timber by 1 unit will decrease the quantity of food by (1/2) units.

(2) (D)

Here, opportunity cost = Slope of linear PPF = - 30/15 = - 2 Timber

So, increase of food by 1 unit will decrease the quantity of timber by 2 units.

(3) (A)

Total production = (2/5) x 30 = 12 timber and (3/5) x 15 = 9 food.

(4) (A)

Opportunity cost (OC) of 1 additional unit of food is as follows:

Plot A: 2/5 = 0.4 timber

Plot B: 4/4 = 1 timber

Plot C: 6/3 = 2 timber

Plot D: 8/2 = 4 timber

Plot E: 10/1 = 10 timber

OC is lowest for Plot A.

NOTE: First 4 questions are answered.

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