Exercises: The Production Possibilities Curve

A production possibilities curve (PPC) shows the combinations of two goods that an economy can produce. In your own words, define a PPC, and explain what the points on the curve, inside the curve, and outside the curve each tell us about production.

A small town in Texas can use its farmland to produce only wheat and corn. Consider these points on its PPC graph, with wheat on the horizontal axis and corn on the vertical axis: Point A is on the curve, Point B is inside the curve, and Point C is outside the curve. Classify each point as efficient, inefficient, or unattainable, and give one reason for each.

Mateo has 6 hours before a big test. He can spend each hour studying math or studying history. If he moves from studying 4 hours of math and 2 hours of history to 5 hours of math and 1 hour of history, what is the opportunity cost of the extra hour of math? Explain what "opportunity cost" means in this case.

An economy produces only laptops and tablets. Its production possibilities are shown in the table.

(a) Calculate the opportunity cost, in tablets, of each laptop when moving from A to B, from B to C, and from C to D.

(b) Does this PPC show constant or increasing opportunity cost? Explain how you know.

A food truck owner in Chicago can make at most 100 tacos or 50 burritos in a day using all of her time and ingredients, and she can trade off between them at a constant rate along a straight-line PPC.

(a) Write the opportunity cost of one burrito in tacos.

(b) Is a day with 40 tacos and 30 burritos attainable? Is it efficient? Explain.

(c) How many burritos can she make if she makes 60 tacos and uses resources efficiently?

A country produces only military goods and consumer goods. Describe what happens to its PPC, or to its position on the PPC, in each of these cases, and explain your reasoning:

(a) A new technology doubles the output of consumer goods but does not affect military goods.

(b) A hurricane destroys many factories that produce both types of goods.

(c) The country moves from producing 30 units of consumer goods and 70 of military goods to 50 and 50, both on the same curve.

A state's economy produces corn and solar panels. The table shows efficient combinations.

(a) Calculate the opportunity cost of 10 thousand tons of corn at each step from A to E, in thousands of solar panels.

(b) Explain why the opportunity cost changes as the state produces more corn. Use the idea that resources are not equally suited to both goods.

(c) The state is currently producing 20 thousand tons of corn and 20 thousand solar panels. Explain whether this point is attainable and efficient, and describe one way the state could produce more of both goods.

(d) A drought permanently reduces the amount of corn the state can grow with the same resources, but has no effect on solar panels. Describe the effect on the PPC, including which intercepts change.

Aaliyah runs a small studio that makes either 12 videos or 6 podcast episodes per week, and she can trade off at a constant rate. She hires an assistant, which lets her make 18 videos or 9 podcast episodes per week at the same constant rate.

(a) Write the opportunity cost of one podcast episode in videos before and after hiring the assistant. Did it change? Explain.

(b) Describe the shift in her PPC and explain which economic concept it illustrates.

(c) Before hiring, she produced 8 videos and 2 podcast episodes. Is that point efficient? After hiring, can she produce 8 videos and 5 podcast episodes? Justify each answer with numbers.

(d) Explain why a shift of the PPC differs from a movement along the PPC.