Question

Table 1-1

Possible Output Combinations	Apples (thousands of kilos)	Pears (thousands of kilos)
A	70	0
B	60	20
C	50	36
D	40	48
E	30	56
F	20	60
G	10	63
H	0	65

2.       Refer to Table 1-1. 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 kilos 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 a maggot infestation which destroys apple trees but not pears. Show in a graph what happens to its PPF.

3.       Suppose you own an outdoor recreation company and you want to purchase all-terrain vehicles (ATVs) for your summer business and snowmobiles for your winter business. Your budget for new vehicles this year is $240,000. ATVs cost $8000 each and snowmobiles cost $12,000 each.

a.       Draw a budget line for your purchase of new vehicles.

b.       What is the opportunity cost of one ATV?

c.        What is the opportunity cost of one snowmobile?

Answer 1