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| MBA6008 – Global Economic Environment | Unit 1 Assignmentu01a1 - Economic Problems | | Modupé Lawanson | 10/19/2014 |

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PROBLEM 1
Below is a production possibilities table for consumer goods (food) and capital goods (machinery). Graph the data using Excel and then answer the following questions. | A | B | C | D | E | F | FOOD | 0 | 10 | 20 | 30 | 40 | 50 | MACHINES | 150 | 140 | 120 | 90 | 50 | 0 |

1. What are the specific assumptions that underlie the production possibilities curve? * The specific assumptions that underlie the production possibilities curve are as follows: 1. Assuming a fixed availability of supplies, resources, and fixed technology, the curve displays the different combinations of machines and food society can produce in a fully employed economy. 2. Each point on the curve represents some maximum output of the two products. 3. The curve is a “constraint” because it shows the limit of attainable outputs. 4. Points on the curve are attainable as long as the economy uses all its available resources. 5. Points lying inside the curve are also attainable, but they reflect less total output and therefore are not as desirable as points on the curve. 6. Points lying outside the curve are unattainable with the current availability of resources and technology. 2. What would be the cost of more food if the economy is at point C? What would be the cost of producing more machinery? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs? * The cost of more food if the economy is at point C would mean a reduction in the amount of machines produced. For example: At point C, Food is 20 and Machines are 120. 7. In order to move to point D, the marginal opportunity cost is 30 machines.

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