Question

- please use keyboard (don't use handwriting)

- please use your own words don’t copy and paste (no plagiarism)

- no pictures containing text

Problem 1

Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:

Tables	Chairs
0	100
10	80
20	60
30	40
40	20
50	0

1. Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.
2. What is Bill’s opportunity cost of producing one additional table?
3. What is Bill’s opportunity cost of producing one additional chair?
4. Currently Bill is producing 20 tables and 40 chairs.

1. Is this allocation of resources efficient? Why?
2. Show this allocation on the graph and advise Bill how he can be more efficient.

Answer 1

The PPF for Bill shows all the efficient combinations of tables and chairs that he can produce.

The PPF is shown as below:

---

Bill’s opportunity cost of producing one additional table: 2 Chairs
Bill’s opportunity cost of producing one additional chair: 0.5 Table

---

Current allocation: 20 Tables and 40 Chairs

a) The current allocation is inefficient.

It lies inside the PPF, and thus the resources are not being utilized efficiently.

---

b) The current allocation will appear as under:

---

Bill has three options as under:

• At a level of 20 tables, Bill can produce more chairs, till 60 chairs. OR
• At a level of 40 chairs, Bill can produce more tables, till 30 tables. OR
• Bill can produce 25 tables and 50 chairs

Any one of the above three options can be pursued, to make Bill's production efficient. This will take him to a point on the PPF.