Question

PPF: The economy of Islandia uses labour only to produce necklaces and shoes. The number of labour is fixed at 100.

# of Labour 0 20 40 60 80 100
Necklaces 0 10 20 25 27.5 30
Pair of Shoes 0 15 25 32.5 37.5 40

Use the above table to answer the following questions.
(a). Plot the PPF.
(b). What is the opportunity cost of producing the first 10 necklaces? What is the opportunity cost of producing the next 10 necklaces (i.e. 10 to 20)? What happens to the opportunity cost of necklaces as their production is continuously increased

Answer 1

Answer:

Explanation:

To draw the PPF we first need to understand the possible combinations of Necklaces and Pair of Shoes that the economy of Islandia can achieve with a fixed number of labour of 100.

-if we use 100 units of labour to make necklaces we can make 30 necklaces, but that would mean that we have no units of labour left to produce shoes so the number of shoes would be 0 (point A in the graph below)-

if we use 80 units of labour to make necklaces we can make 27.5 necklaces, but that would mean that  we have 20 units of labour left to produce shoes so the number of shoes would be 37.5.