Production Possibilities Curve
3.1 Construct a Production Possibilities Curve in Excel based on the following Production possibilities Schedule:
Missiles Milk (millions of gallons)
0 40
10 34
20 27
30 19
40 10
50 0
What is the “shape” or the “slope” of the frontier or curve?
Calculate the opportunity cost of producing the “first” batch of 10 missiles.
Calculate the opportunity cost of producing the “last” batch of 10 missiles.
What would it mean if the economy was operating at the frontier?
What would happen to the frontier if the production technology improves?
3.2 Discuss why the production possibilities frontier is concave (not a straight line)?
What would it mean if the economy was operating at the frontier? What would happen to the frontier if the production technology improves?
