Answer to Question #219758 in Microeconomics for Angry Bird

Question

A small country produces only two goods, cars and cakes. Given its limited resources, this country has the following production possibilities:

Cars

Cakes

0

200

25

180

50

130

75

70

100

0

a. Draw the production possibilities curve. (10 Marks)

b. Suppose car production uses mainly machines and cake production uses mainly labor. Show what happens to the curve when the number of machines increases, but the amount of labor remains unchanged. (10 Marks)

Answer 1

a)

b)

the production curve will shift as shown because increase in capital will increase cars production much more than cakes.