Question

Production Possibility Frontiers: Corn and Rice

a. Draw a production possibilities curve for your farm of ten acres between growing corn and growing rice. Is there a tradeoff between these two? Why? How is the tradeoff shown in your graph? (Make sure you label you axes.)

b. Is the PPF line meaningful? Can your farm produce outside (above) the line? Why or why not? Will you produce inside the line? Why or why not?

c.What is the cost of growing corn? What is the cost of producing rice? Where are these costs shown in your graph?

d. What happens to the production possibilities frontier if you dig a new irrigation line to water your land? What happens to the PPF if you get a new fertilizer system that makes it easier to grow corn (but has no effect on rice?) What if a new South American beetle arrives that eats corn but does not bother your rice?

e. What happens if your rice helps your corn by increasing its production, while the corn blossoms also help the rice. Show the new PPF. Does this mean that we can have “free lunch”?

Answer 1

There is a tradeoff between the production of rice and corn because of limited resources.If one more of one goods needs to be produced,the more of other goods has to be sacrificed.This is shown by the slope of the PPF called Marginal rate of transformation(MRT).

B.Production on the points which are on the PPF are both attainable and efficient.Points outside the PPF are efficient but attainable.Points inside the PPF are attainable but inefficient.

C.The cost of growing corn is the amount of rice forgone and the cost of growing rice is the amount of corn forgone.This is shown by the MRT.

D.In case of beetles the PPF will pivot towards rice.