Explain production possibilities frontier by putting tables on the Horizontal axis and chairs on the vertical axis

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Question-1

Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:                                                                                                                   (3 Marks)

 

 

1.      Explain production possibilities frontier (PPF) by putting tables on the Horizontal axis and chairs on the vertical axis. What is Bill’s opportunity cost of producing one additional table?

2.      Currently Bill is producing 70 tables and 140 chairs. Is this allocation of resources efficient? Why?

3.      Show this allocation on the graph and advise Bill how he can be more efficient.

Question-2

Explain by applying these concepts with examples.                                                      (2 Marks)

1.      Rational people respond to incentives

2.      Role of prices in allocating resources

Question-3

 

The table below shows the marginal benefit that Khaled earns from keeping his store open one more hour. Khaled has a marginal cost of $40 per hour. Khaled stays open 20 hours.        (3Marks)

Hours	Marginal Benefit Per Hour
20	200
21	140
22	110
23	70
24	40
25	10
26	0

                                                                                           

1.      Do you think Khaled’s decision to stay open 20 hours is optimal? Why? 

2.       How many hours do you advise Khaled to stay open? Why?

Question-4

Suppose the market for Computer is given by the following equations for supply and demand:  (2 Marks)

 Qd= 3300−2P
 Qs= 500+8P

1.      Calculate the equilibrium price and quantity.

2.      Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price. 

Attachments:

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