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Opportunity Cost and PPF Analysis

This document is a problem set for an ECON 101 course, focusing on concepts of scarcity, opportunity cost, and production possibilities frontier (PPF). It includes questions about personal opportunity costs, drawing PPFs for EcoLand's production scenarios, and analyzing the opportunity costs related to a taqueria's drink production. Students are required to apply economic principles to real-world scenarios involving production decisions.

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2 views3 pages

Opportunity Cost and PPF Analysis

This document is a problem set for an ECON 101 course, focusing on concepts of scarcity, opportunity cost, and production possibilities frontier (PPF). It includes questions about personal opportunity costs, drawing PPFs for EcoLand's production scenarios, and analyzing the opportunity costs related to a taqueria's drink production. Students are required to apply economic principles to real-world scenarios involving production decisions.

Uploaded by

rs
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Name:________________________Date Due:___________;Officially Enrolled in Sect:___

Problem Set 2: Scarcity, Opportunity Cost and the PPF


ECON 101 Professor Conroy

1. Describe your personal opportunity cost for attending USD this semester? Be sure to
include the definition of opportunity cost in your response.

2. Using the following data provided in the table, draw the production possibilities frontier
for the economy of EcoLand in 2022. (Please place textbooks on the horizontal axis.)

EcoLand’s 2022 Production


Possibilities
Textbooks/year Printing
Presses/year
0 150,000
15,000,000 140,000
30,000,000 120,000
45,000,000 90,000
60,000,000 50,000
75,000,000 0

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3. Scenario A: Say that EcoLand actually produces 15,000,000 textbooks and 140,000
printing presses. Place a letter “A” at this point on your diagram above. Scenario B:
Now, say that EcoLand produces 60,000,000 textbooks and 50,000 printing presses,
instead. Place a letter “B” at this point in your diagram above.
a. Discuss which scenario (A or B) would lead to a more generous production
possibilities frontier for EcoLand in 2023 (i.e. which would be farther from the
origin)? Why?

b. Using a dashed line/curve, draw what EcoLand’s new PPF in 2023 might look
like under each scenario mentioned above. Label the PPF for the “A” scenario
as “PPF 2023--A” and the “B” scenario as “PPF 2023--B.”

4. Juanita’s Taqueria sells two types of pre-packaged drinks, jamaica and horchata.
Juanita is able to purchase jamaica for 75 cents per drink and horchata costs her 30
cents per drink. If Juanita has $100/day budgeted for drinks, draw her production
possibilities frontier (per day) below. (Please place “jamaicas/day” on the horizontal
axis)

a. What is the opportunity cost of purchasing one jamaica?

b. What is the opportunity cost of purchasing one horchata?

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5. Now, say that Juanita decides to produce the drinks herself, using flowers from her
backyard trees and free rice and cinnamon she has in her basement sitting around. Say
that it takes her 1/3 of an hour to make one glass of jamaica and 1/2 hour to make one
glass of horchata. Assuming Juanita devotes 8 hours to making drinks, draw her
production possibilities (per day) below. (Please place “jamaicas/day” on the
horizontal axis)

a. What is Juanita’s opportunity cost of producing one glass of jamaica?

b. What is Juanita’s opportunity cost of producing one glass of horchata?

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