BAFB1023 MICROECONOMICS

TOPIC 1
INTRODUCTION TO MICROECONOMICS

Question 1

Consider a simple economy producing two goods: tank and machine gun. The following
table gives several points on this economy’s production possibility frontier.

Tank – Leopard 2A6M MG08 Machine Gun

(per year) (year)
0 65
10 60
15 55
18 40
20 0

Based on the information above:

a) Plot this economy’s production possibility frontier. Label your graph.

b) Suppose the economy is currently producing 15 tanks and 55 machine guns. What is the
opportunity cost of producing 60 machine guns?

Opportunity cost of producing 60 machine guns = 5 tanks

c) Suppose the economy is currently producing 15 tanks and 55 machine guns. What is the
opportunity cost of producing 18 tanks?

Opportunity cost of producing 18 tanks = 15 machine guns

Question 2

The table below illustrates a production possibilities frontier for a small economy, Atlantis.
The resources available could be used to produce capital or consumer goods. The
resources could be used in the following ways:

Combination Capital Goods Consumer Goods

A 5 0
B 4 5
C 3 9
D 2 12
E 1 14
F 0 15

Based on the information given:

a) Plot the production possibilities frontier for Atlantis.

b) If the economy is at point C, what is the opportunity cost of producing one more capital
goods?

The opportunity cost of producing one more capital good is 4 consumer goods.

c) If the economy is at point D, what is the opportunity cost of one more consumer goods?

The opportunity cost of one more consumer good is 2 capital goods.

 ***End of Exercise Questions***