Reference no: EM131008137
NOTE: Production Possibility Frintier and Production Possibility Curve (PPC) are the same thing.
1. Suppose that Jeffrey can produce a maximum of 50 units of corn, 20 units of grapes, or some linear combination of these extremes. Likewise, Sarah can produce a maximum of 10 units of each, or some linear combination.
(a) Which person has the absolute advantage in corn production, and which has the comparative advantage in corn production? What about grapes?
(b) Draw the production possibility frontier for Jeffrey and Sarah, jointly (only one PPF with Jeffrey and Sarah combined), being sure to explain your graph.
(c) Show what happens to the production possibility frontier if:
(i) a technological improvement enables Jeffrey and Sarah to produce twice as much corn;
(ii) an illness causes Sarah to not be able to work.
2. Bruce change owns his own bookkeeping firm, and runs it out of the basement in his home.
(a) Bruce claims that his firm is low cost because he doesn't have to pay any rent for an office. Is this true? Explain.
(b) Bruce recently turned down an offer to be postal worker for $55,000 per year. His income from bookkeeping is $48,000 per year. Is his bookkeeping business profitable?
(c) Bruce loves to be his own boss, and this is worth $10,000 per year to him. Does this change your answer in (b)? How so?
3. Suppose someone is caught committing a crime. Suppose the judge can either given the criminal a fine or a jail sentence. The criminal is indifferent between the two punishments. Does each punishment have the same opportunity cost to society?
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