SOLVED

61) To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage. These facts suggest that a negative relationship exists between safety and gas mileage. 62) What is a production possibilities frontier? What do points along the frontier represent? What do points inside and outside the frontier represent? 63) What shape does a production possibilities frontier take if it displays increasing opportunity costs? What shape does a production possibilities frontier take if it displays constant opportunity costs? Which shape is most common in production situations? 64) a. Draw a production possibilities frontier for a country that produces two goods, beer and pretzels. Assume that resources are equally suited to both tasks. b. Define opportunity costs. c. Use your production possibilities frontier graph to demonstrate the principle of opportunity costs. b. Opportunity cost is defined as the highest valued alternative that must be forgone by taking an action. c. In the PPF graph in part (a), suppose the country is currently producing at point X and wishes to move to point Y so that it can produce more beer. The only way it can obtain more beer is to give up some amount of pretzels.    65) Refer to Table 2-2. The Fruit Farm produces only apples and pears. The table above shows the maximum possible output combinations of the two fruits using all resources and currently available technology. a. Graph The Fruit Farm’s production possibilities frontier. Put apples on the horizontal axis and pears on the vertical axis. Be sure to identify the output combination points on your diagram. b. Suppose The Fruit Farm is currently producing at point D. What is the opportunity cost of producing an additional 8,000 pounds of pears? c. Suppose The Fruit Farm is currently producing at point D. What happens to the opportunity cost of producing more and more pears? Does it increase, decrease or remain constant? Explain your answer. d. Suppose The Fruit Farm is currently producing at point G. What happens to the opportunity cost of producing more and more apples? Does it increase, decrease or remain constant? Explain your answer. e. Suppose The Fruit Farm is plagued by the apple maggot infestation which destroys apple trees but not pears. Show in a graph what happens to its PPF. b. 10,000 pounds of apples c. It increases. For example to move to E, The Fruit Farm has to give up 10,000 pounds of apples to produce an additional 8,000 pounds of pears. For each additional 10,000 pounds of apples foregone, the payoff in terms of pears gets progressively smaller. d. It increases. Each time it wants to produce an additional 10,000 pounds of apples, more and more pears must be given up. e.