Question 1 

Given the following chart answer the questions below, assuming that all resources and

technology are fixed for this farm.

Corn(bu) Soybeans(bu)

20,000 0

16,000 5000

12,000 9000

8,000 12,000

4,000 14,000

0 15,000

A) Draw the production possibilities frontier. PLACE CORN ON THE Y AXIS

B) Is this farm able to produce 12,000 bushels of corn and 8,000 bushels of soybeans?

What does this combination of output suggest about the use of resources?

C) Is this farm able to produce 8,000 bushels of corn and 13,000 bushels of soybeans?

What does this combination of output suggest about the use of resources?

D) What happens to the opportunity cost of corn production as the farm produces more

corn?

E) What happens to the opportunity cost of soybeans production as the farm produces

more soybeans?

F) What is the opportunity cost of expanding soybean production from 12,000 to 14,000

bushels?

G) What would be the opportunity cost of producing an additional 2,000 bushels of

soybeans if this farm were currently producing 8,000 bushels of corn and 10,000 bushels

of soybeans?

Explain your answer.

H) Suppose Monsanto (a chemical and biological engineering firm) develops a new strain

of soybeans that is more disease resistant, heat and drought tolerable such that it increases

yields by 15%, what happens to the PPC?

Question 2

Pete’s a kid and his weekly allowance is $10. He spends his entire allowance between

gummi bears and chocolate.

A price of a pound of gummi bears (GB) is $2.50 and the price of a pound of chocolate is

$5

A) Graph Pete’s consumption possibilities curve (between the amount of gummi bears

and chocolate). PLACE GUMMI BEARS ON THE X AXIS

B) Can Pete buy the following combinations of gummi bears (GB) and chocolate (C)?

i) 1.5 pounds of GB and pounds of 1.5C

ii) 2 pounds of GB and pounds of 1C

iii) 3 pounds of GB and pounds of 0.75C

C) What is the opportunity cost of Pete’s:

i) first pound of gummi bears

ii) second pound gummi bears

iii) last pound of gummi bears