Answer to Question #300931 in Microeconomics for ryan

Question

 

1.    Production Possibilities: The country Toyland can produce the following combinations of Dolls, and Fire Trucks:

 

Dolls: Fire Trucks:

400 0

300 230

200 360

100 460

0 500

 

a.  What is the opportunity cost to Toyland when it increases the production of dolls from 0 to 100? 2 Marks

b.What is the opportunity cost to Toyland when it increases the production of dolls from 100 to 200? 2 Marks

c.  Is Toyland faced with a tradeoff? Explain. 1 Mark   

         5 Marks Total

Answer 1

a. What is the opportunity cost to Toyland when it increases the production of dolls from 0 to 100?

If Toyland makes 500 firetrucks it produces 0 dolls. It makes 460 firetrucks for every 100 dolls it makes. As a result, increasing doll production from 0 to 100 results in 40 fewer firetrucks. As a result, the opportunity cost is equal to 40 firetrucks.

b.What is the opportunity cost to Toyland when it increases the production of dolls from 100 to 200?

Toyland makes 460 firetrucks for every 100 dolls it makes. It makes 360 firetrucks for every 200 dolls it makes. As a result, when it raises doll making from 100 to 200, it produces 100 fewer firetrucks. As a result, the opportunity cost is equal to 100 firetrucks.

c.  Is Toyland faced with a tradeoff? Explain.

Yes. Toyland is faced with a tradeoff. This is due to the fact that it has limited resources, so if it wants to expand the production of one product, it must lower the production of another.