Examine the following table, and answer the questions thatfollow. (2 marks each)

Question

Examine the following table, and answer the questions thatfollow. (2 marks each)

Productionpossibilities

(alternatives)

A B C D E F

Capital goods 0 4 8 12 16 20

Consumer goods 60 56 48 36 20 0

a. Using the numbers in the table above, explain the lawof increasing costs.

b. If the economy is at point C, what is the opportunitycost of moving from the 8th to

the 9th unit of capital goods?

c. Which alternative, B or C, would promote a more rapidrate of economic growth?

Why?

d.Suppose the economy shown above is actually producing 7 units ofcapital

Explanation / Answer

b) Approximating the opportunity cost of moving from the 8thto the 9th unit of capital goods by approximating the slope at 8units moving towards the 12th unit, we have (36-48)/(12-8)=-12/4=-3units. c) Total output of goods is higher in B than in C, so B is thebetter alternative.

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