Question

A country produces two goods : A and B.

Its production possibilities are shown in

the following table. Calculate the values of

MRT. Construct a PPF, with the help of

given possibilities and discuss the shape of

PPF.

POSSIBILITIES A B C D E F

GOOD A 0 1 2 3 4 5

GOOD B 100 95 85 70 50 25​

Answer 1

Answer:

MRT;-;5;1 10;1 15;1 20;1 25;1 and PPF will be concave shaped)

Answer 2

$MC_{A}$: Money needed to produce another unit of A

$MC_{B}$: rate of increase by cutting production of B

TABLE:

POSSIBILITIES A B MCA MCB MRT

                    A  0 100     -            -            -

                    B    1 95        1    5           5/1

                    C 2 85         1    10          10/1

                    D 3 70          1     15           15/1

                     E 4 50          1    20   20/1

                     F 5 25          1    25   25/1

SHAPE OF PPF :

The shape of PPF is commonly drawn as concave to the origin to represent increasing opportunity cost i.e. the loss of another alternative when one alternative is chosen, with increased output of a good. Thus, MRT increases in absolute size as one moves from the top left of the PPF to the bottom right of the PPF.

Following is the construction of the PPF:

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