Construct the new production possibility curve

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a) Use the following data to construct a production possibility curve for a hypothetical economy.

Clothing

0

10

20

30

40

50

Houses

75

60

45

30

15

0

b) Calculate the opportunity cost of producing the first 15 houses.

c) What is the marginal rate of substitution between houses and clothing production?

d) Mark in the position of an economy on the curve you have constructed that was producing 20 units of clothing and 45 houses. How would you describe this economy's resource use?

e) If the productivity of resource use increased, doubling the production possibility for both clothing and houses, construct the new production possibility curve that would result.

f) Explain why production possibility curves may be concave to the origin.

g) Explain how the process of economic growth can be presented by the new production possibility curve constructed in question 5.

Reference no: EM13124011

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