Point A 4m barrels oil 200 tonnes lumber Point B 6m barrels oil 150 tonnes lumbe

Question

Point A 4m barrels oil 200 tonnes lumber
Point B 6m barrels oil 150 tonnes lumber

a) If we had a PPF with the goods oil and lumber, how would be measure the MC of oil between                points A and B ? *
B) What would be the MB of lumber in this example? *
c) If we move between two points A and B on a PPF, what is the opportunity cost of oil?

*let a unit of oil = 1 million barrels and 1 unit of lumber = 100 tonnes

D)    As the oil is used up it becomes harder to access (more resources have to be used to get the oil) how would this affect the PPF? (draw a PPF to show the change – you don’t need to put numbers on the axes).

Explanation / Answer

A) 1M barrels costs 25 tonnes of lumber, MC = constant B) 25 tonnes of lumber = -1m barrel of oil C) 2M barrels = 50 tonnes lumber so 1M barrel = 25 tonnes lumber D) It would just extend to the axis and become 0

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