Group Assignment Presentation 1

Nguyen Thuy Linh

Do Thuy Linh
Ngo Thi Thu Trang
Le Nguyen Khanh Hung

Exercise 1:
a. Graph the data in the table. Are there constant or increasing opportunity costs for the
production of missiles?

• From point E to point D: the opportunity cost for the production of guided missiles increase
from 0 to 12 (in thousands) is 2 million cars (it means if the economy wants to increase the
output of guided missiles from 0 to 12 thousand, it has to cut down the cars from 8 to 6 million,
by 2 million). So to produce one more thousand missiles, the economy has to reduce the
production of cars, approximately 2:12≈0,1666(in millions).
• Similarly, to produce one more thousand missiles, the economy has to reduce the production of
cars by approximately 0,2222 million from point D to point C, 0,3333 million cars from point C
to B, and approximately 0,6666 million cars from point B to point A

Therefore, there are increasing opportunity costs for the production of missiles we can see the
trade-off between cars and missiles.
b. If the economy is currently at point C
-What is the cost of one million more cars?
- What is the cost of one thousand more guided missiles?

From the data table, we can see that there are increasing opportunity costs
for the production of missiles. To produce the first 2 million cars, they had to give up the
production of about 3 million guided missiles. So the initial opportunity cost is 3 million
guided missiles. With the next 2 million cars, the number increased to 6 million guided missiles.
This means the economy must give up larger and larger amounts of missiles to get
constantly added amounts of cars and vice versa. The opportunity cost ended up being
huge: 12 million.
If the economy is currently at point C:
- The cost of one million more cars is about 4,5 million guided missiles.
- The cost of one thousand more guided missiles is about 0,33 million cars

c. Label a point G inside the curve of the graph. What does it indicate?

Point G indicates the economic output of Cars and Missile. If G is inside the curve of the graph,
the economy is inefficient in its production because it can not use the most effective input, which
leads to insufficient output.

d. Label a point H that lies outside the PPF curve.

- What does this point indicate?
- What must occur before the economy can attain the level of production indicated by point
H?

-As far as we are concerned, the point on the PPF curve has already been the point at the highest
possible outcome. H point that lies outside the curve indicates the outcome surmounts the highest
possible outcome, it is impossible if the resources are fixed.
-The economy can attain the level of production indicated by point H only when the resources
are improved

e. Suppose improvement occurs in the technology of producing guided missiles but not in
the production of cars.
-Draw the new PPF curve on the graph you created.
- Now draw a curve that reflects technological improvement in the production of both
products.
Exercise 2:

a. Draw the production possibility frontier (PPF) curve for this economy
b. If the output of wheat and cloths is 9 tons of wheat and 4000 sets of cloths, what do you
think about the productive efficiency of this economy?

If the output of wheat and clothes is 9 tons of Wheat and 4000 sets of clothes means that this
economy is not allocative efficient because if it produces 9 tons of wheat, the most set of clothes
it can produce to maximize profit is 9000 sets of clothes

c. Can this economy produce 20 tons of wheat and 10,000 sets of clothes?

This economy cannot produce 20 tons of wheat and 10,000 sets of clothes. Because from point A
to B, the opportunity cost of producing more than 4000 sets of clothes is 5 tons of wheat. This
means with 20 tons of wheat, this economy can just produce 4000 sets of clothes.

d. Calculate opportunity costs of producing wheat and cloths.

* The opportunity costs of producing wheat:

 From point E to point D: the output of wheat increased by 9 tons and the output of cloths
decreased by 1000 sets.
=> The opportunity costs to increase 9 tons of wheat is: 1000 sets of clothes
Similarity:
 From point D to point C: About 2000 sets of clothes.
 From point C to point B: About 3000 sets of clothes.
 From point B to point A: About 4000 sets of clothes.
* The opportunity costs of producing cloth:
 From point A to point B: About 5 tons of wheat.
 From point B to point C: About 5 tons of wheat.
 From point C to point D: About 6 tons of wheat.
 From point D to point E: About 9 tons of wheat.