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The following table represents a society's production possibilities schedule for two categories of goods: Donuts and Nuclear Power Plants

Combination DONUTS (units) NUCLEAR POWER PLANTS (units)
A 155 0
B 150 1
C 140 2
D 120 3
E 80 4
F 0 5


Construct a production possibilities curve on graph paper with units of NUCLEAR POWER PLANTS on the horizontal axis and units of DONUTS on the vertical axis. (DO NOT SUBMIT THE GRAPH).

  1. Can this nation currently produce 15 units of NUCLEAR POWER PLANTS? Explain.
  2. Can this nation currently produce 100 units of DONUTS? Explain.
  3. What is the marginal opportunity cost of the 5th unit of NUCLEAR POWER PLANTS?
  4. What is the marginal opportunity cost of the 3rd unit of NUCLEAR POWER PLANTS?
  5. Does this production possibilities curve reflect the law of increasing opportunity costs? Explain.
  6. Suppose this nation is currently producing 40 units of DONUTS and 3 units of NUCLEAR POWER PLANTS. Describe where this point is with reference to the position of the production possibilities curve.
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Retselisitsoe Pokothoane
Retselisitsoe PokothoaneLv10
28 Sep 2019

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Related questions

Tackling Negative Externalities from Smog: Two power plants provide power to all of Ontario: a Nanticoke plant and a Lennox plant. Both power plants burn coal to produce electricity, and consequently produce smog as a by-product. The Nanticoke power plant could reduce its at a total cost:

TCN(Qn) = 5(QN)^2
where QN indicates the total number of units reduced by Nanticoke. The Lennox plant is

slightly less efficient and its total cost for cutting down on smog by QL is: TCL(QL)=7(QL)^2 +10QL

The Ontario government hires a team of environmentalists who calculate that the total benefit of smog abatement to the Ontario province is 100(QN + QL):

1. Calculate the socially optimal level of smog reduction for each power plant.

2. Suppose Ontario government considers imposing a tax on power production.

(a) What tax should it impose to reach the abatement amounts you calculated in (1)?

(b) Write down each firm’s optimization problem under the tax, and show that each will privately choose the socially optimal abatement amount.

3. Suppose that instead of taxation, the Ontario government tries to regulate quantities. However, it cannot write a law for each firm, so it simply declares that all Ontario power plants must cut down on smog by 1 unit each year. Show that this is not efficient.

4. Suddenly, an economist is voted in as Premier of Ontario. She declares that Lennox power plants must cut down on smog by 5 units overall. Additionally, she declares that firms will be able to competitively trade permits that will allow them NOT to abate. One of the Premier’s old classmates from graduate school runs the Nanticoke power plant, so the Premier grants Nanticoke 5 permits and Lennox 0 permits. As a result, Lennox is expected to abate by 5 units, and Nanticoke (since it owns all the permits) is not expected to abate at all.

(a) Lennox will surely want to buy some of Nanticoke’s permits. Explain intuitively why this trade might happen.

(b) Denote the number of permits that firm i ∈ {N, L} eventually holds as Yi (so that Qi = 5−Yi), and denote the competitive price of permits as PY . Derive the amount of permits that Nanticoke will eventually hold as a function of PY . Calculate the amount of permits that Lennox will hold as a function of PY .

(c) Using the fact that YM + YN = 5, calculate PY .

(d) If the new mayor had divided the permits up differently, what outcomes would have

changed and what would have stayed the same?

Problem 1

Below is a production possibilities table for consumer goods (food) and capital goods (machinery). Graph the data using Excel and then answer the following questions.

 

A

B

C

D

E

F

FOOD

0

10

20

30

40

50

MACHINES

150

140

120

90

50

0

(a) What are the specific assumptions that underlie the production possibilities curve?

(b) What would be the cost of more food if the economy is at point C? What would be the cost of producing more machinery? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs?

(c) What if this hypothetical economy were producing only 9 food and 130 machines and it was depicted by this production possibilities table and curve? What conclusions could be drawn about this economy's resource utilization?

(d)Can this economy produce outside its current production possibilities? How can technological changes affect the production possibilities curve? How can international trade permit consumption above its production possibilities curve?

Refer to the table of production possibilities from the following in answering the following questions: a. Calculate the opportunity cost of producing one bicycle as the economy increases production of bicycles along the production possibilities curve. Make sure to include the unit of measurement for the numerical value you find. b. Explain how and why the value of the opportunity cost you calculated in part a. represents for this economy in making choices about production. c. Calculate the opportunity cost of producing one computer le as the economy increases production of computers along the production possibilities curve. Make sure to include the unit of measurement for the numerical value you find.

The table below contains combinations of bicycles and computers that an economy can produce with all of its resources:

Combination Bicycles Computers

A 0 250

B 60 210

C 120 170

D 180 130

E 240 90

F 300 0

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