Question

Assume for the United States that the opportunity cost of each airplane is 50 cars. Which of these pairs of points could be on the United States' production possibilities frontier? a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars) b. (200 airplanes, 12,500 cars) and (150 airplanes, 15,000 cars) c. (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars) d. (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars)

Answer 1

Answer:

B) (200 airplanes, 12,500 cars) YES and (150 airplanes, 15,000 cars) YES

Explanation:

Opportunity costs refer to extra costs or lost income resulting from choosing one activity or investment from another alternative. Opportunity costs are the basis for the comparative advantage trade theories that state that countries will trade those goods that they can produce at a lower opportunity cost than their trade partners.

In this case, if the opportunity cost of producing one airplane is 50 cars, then the production possibilities frontier of the US (regarding cars and planes) must include combinations where the number of airplanes produced is 50 times smaller than the number of cars produced.

a. (200 airplanes, 5,000 cars) NO and (150 airplanes, 4,000 cars) NO

b. (200 airplanes, 12,500 cars) YES and (150 airplanes, 15,000 cars) YES

        200 x 50 = 10,000                                 150 x 50 = 7,500

c. (300 airplanes, 15,000 cars) YES and (200 airplanes, 25,000 cars) NO

d. (300 airplanes, 25,000 cars) NO and (200 airplanes, 40,000 cars) NO

Answer 2

Answer:

B

Explanation:

Opportunity cost refers to the benefit of something forgone in choosing an alternative.

the opportunity cost  of 50 cars equals one airplane

the pairs of points that could be on the United States; production possibilities frontier is 200  airplanes , 12500 cars and 150 airplanes, 15 000 cars.

since 50 airplanes reduction  = 50 × 50 cars increment = 2500 cars