Answer to Question #247160 in Microeconomics for Chilu

Question

Suppose the production possibility frontier for cheeseburgers (C) and milkshakes (M) is given by C + 2M =600 a.Graph this function. b.Assuming that people prefer to eat two cheese-burgers with every milkshake, how much of each product will be produced? Indicate this point on your graph. c.c. Given that this fast-food economy is operating efficiently, what price ratio (PC/PM) must prevail?
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Answer 1

Solution:

a.). As per the production possibility frontier, the milkshake is two times expensive than a cheeseburger. With the available income, the maximum production of a cheeseburger is 600 units and the cost of a milkshake is twice the cost of the cheeseburger, thus, the production of a milkshake is 300.

The graph is as below:

The milkshake is shown vertically and the cheeseburger is shown horizontally. The maximum quantity of cheeseburgers is 600 and the milkshake is 300.

b.). Cheeseburgers = 2

Milkshakes = 1

Slope = ½ = 0.5

The amount of cheeseburgers to be produced = 0.5 $\times$ 600 = 300

The amount of milkshakes to be produced =0.5 $\times$ 300 = 150

This is shown on the graph.

c.). The price ratio that must prevail will be 1:2

That is, for every dollar of a cheeseburger, the price of a milkshake will be 2 dollars