Why is the production possibility frontier downward sloping? Be sure to explain economic intuition behind that fact.


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Q1. CAF Inc. is producing two goods: cars and milk. The following table gives several points on its production possibility frontier.

Cars (1000’s/year) Milk (1000’s of gallons/ year)
0 60
1 50
2 30
3 0

a. Graph this on production possibility frontier. (1.5 Marks)

b. Why is the production possibility frontier downward sloping? Be sure to explain economic intuition behind that fact. (3Marks)

c. Suppose the firm is currently producing 2000 cars and 30,000 gallons of milk. What is the opportunity cost of producing additional 20,000 gallons of milk? (3Marks)

d. Give an example of opportunity cost principle from everyday experiences of economic activities (1.5 Marks)

Q2. A team consisting of three people working on a big project, which involves manual entry of data in a computer, with subsequent processing of these data and making a poster presentation. Naturally, each member of the team has different abilities in performing either task. Amna can make one poster or 400 data entries in a day. Hard-working Zeba can make two posters or 1200 data entries in a day. Artistic Ibraheem can make three posters or 900 entries in a day.
a. Initially, the entire team (each of them having their own personal computer) starts with entering data. How many entries will be made in a day? (2Marks)

b. As the time comes to start making posters, you decide to assign one member of the team to this task. Whom would you choose? Explain why? (2.5Marks)

c. As you make this decision, what is the opportunity cost of each poster made? (1.5Marks)

d. As there is less and fewer data remaining to be entered, another person can shift to making posters as well. Which of the remaining two members of the team will you choose this time? Explain your choice. As a result, what is the opportunity cost of each additional poster you will get? (2Marks)

Q3. Is Economics a science? Why, or why not? As part of your response and explanation, include the definitions of “science” and “economics” as you understand them. (3Marks)

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