Question

According to data from the U.S. Department of Agriculture’s National Agricultural Statistics Service, 124 million acres of land in the United States were used for wheat or corn farming in a recent year. Of those 124 million acres, farmers used 50 million acres to grow 2.158 billion bushels of wheat and 74 million acres to grow 11.807 billion bushels of corn. Suppose that U.S. wheat and corn farming is efficient in production. At that production point, the opportunity cost of producing 1 additional bushel of wheat is 1.7 fewer bushels of corn. However, because farmers have increasing opportunity costs, additional bushels of wheat have an opportunity cost greater than 1.7 bushels of corn. For each of the following production points, decide whether that production point is (i) feasible and efficient in production, (ii) feasible but not efficient in production, (iii) not feasible, or (iv) unclear as to whether or not it is feasible.

1. Farmers use 40 million acres of land to produce 1.8 billion bushels of wheat, and they use 60 million acres of land to produce 9 billion bushels of corn. The remaining 24 million acres are left unused.

2. From their original production point, farmers transfer 40 million acres of land from corn to wheat production. They now produce 3.158 billion bushels of wheat and 10.107 bushels of corn.

3. Farmers reduce their production of wheat to 2 billion bushels and increase their production of corn to 12.044 billion bushels. Along the production possibility frontier, the opportunity cost of going from 11.807 billion bushels of corn to 12.044 billion bushels of corn is 0.666 bushel of wheat per bushel of corn.

Answer 1

1. feasible but not efficient in production
(As 24 million acres are left unused, so, it is feasible as this can be produced with given resources but not efficient because there is not full utilisation of resources.)

2. not feasible
(As 3.158-2.158 = 1 billion bushel of wheat is extra produced and 11.807-10.107 = 1.7 billion bushels lesser of corn is produced. So, opportunity cost is 1.7 bushels of corn given up to get an additional bushel of wheat. But opportunity cost is increasing so this point is not feasible.)

3. feasible and efficient in production
(Change in amount = 12.044-11.807 = 0.237 billion bushels. Cost of producing 0.237 billion bushels = 0.237*0.666 = 0.158 bushel of wheat. This equals loss in output of wheat = 2.158-2 = 0.158. So, this combination is feasible and efficient.)