Quiz 1-

1. The table below represents Olympia's production possibility frontier (PPF). Olympia produces only apples and baskets. Assume that Olympia's PPF is linear between each adjacent given point: e.g., the PPF is linear between points A and B, linear between points B and C, linear between points C and D, etc. Use this information to answer this set of questions.

a. Olympia is currently producing at point C. What is the opportunity cost of producing 25 more apples?

b. Olympia is currently producing at point C. How many baskets can Olympia produce if it decreases its apple production by 25?

c. Olympia is producing 235 baskets. Given Olympia's basket production, what is the maximum amount of apples that can be produced?

2. Jung and Maria each produce cheese and crackers. It takes Jung one hour of labor to produce 2 pounds of cheese and four hours of labor to produce 10 pounds of crackers. It takes Maria two hours of labor to produce 5 pounds of cheese and two hours of labor to produce 10 pounds of crackers. Jung and Maria use only labor to produce cheese and crackers.

a. What is Jung's opportunity cost of producing one additional pound of cheese?

b. What is Jung's opportunity cost of producing two additional pounds of crackers?

c. Who has the comparative advantage in the production of crackers? Explain your answer.

d. Who has the comparative advantage in producing cheese? Explain your answer.

e. Suppose Jung and Maria each have forty hours of labor to use in producing cheese and crackers. In the space below draw their joint production possibility frontier measuring cheese on the vertical axis and crackers on the horizontal axis. In your graph label both endpoints of the joint PPF and any point(s) where the PPF's slope changes with the coordinates of these points.

f. Suppose Jung and Maria each specialize according to their comparative advantage and then trade. What will be the acceptable range of trading prices for 10 pounds of cheese? Make sure your answer includes the units of measurement.