2) U.S. Production of Cars and Airplanes 250 200 150 100 Airplanes Cars 50 10203
ID: 1141098 • Letter: 2
Question
2) U.S. Production of Cars and Airplanes 250 200 150 100 Airplanes Cars 50 102030405060 Airplanes a) Based on the above production possibilities curve, if the U.S. produces 100 cars and 20 airplanes, is this an efficient production output? Explain why or why not. b) Is the U.S. able to produce 30 airplanes and 200 cars? If not explain why. c) What is the opportunity cost of going from 20 airplanes produced to 30 airplanes produced? d) What is the opportunity cost of going from 60 cars to 110 cars? e) Suppose the U.S. settles at point C production output, and during this time Germany produces 40 airplanes and 120 cars. Who has the comparative advantage in producing cars? Why? Who has the comparative advantage in producing airplanes? Why?Explanation / Answer
A)The combination of 100 cars and 20 airplanes lies inside the PPF. This is not an efficient production output because any point inside the PPF means the resources are not allocated and used efficiently which indicates an inefficient production combination.
B) The combination of 30 airplanes and 200 cars lies outside the PPF. USA won't be able to produce this output combination because any point beyond PPF is unattainable as resources are scarce within an economy.
C) To increase airplane production by (30 - 20) = 10 airplanes, USA needs to give up (150 - 110) = 40 cars.
Therefore, opportunity cost of going from 20 airplanes to 30 airplanes is (40/10) = 4 cars.
D) To increase car production by (110 - 60) = 50 cars, US needs to sacrifice (40 - 30) = 10 airplanes.
Therefore, opportunity cost of going from 60 cars to 110 cars is (10/50) = 1/5 = 0.2 airplane.
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