Illustrate what can be said about utilization of resource

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Reference no: EM1364216

Assume that the economy of Travelville can produce two goods, airplanes (A) and buses (B). The production of one airplane requires two months of labor (L) and one ton of steel (S). One bus requires one month of labor and two tons of steel. Travelville is endowed with 120 months of labor and 120 tons of steel.

a. Draw the production possibilities frontier (curve) for Travelville. Put airplanes (A) on the vertical axis. Assume that fractions of airplanes and buses can be built. (HINT: For different quantities of airplanes, determine how many buses can be produced. How many airplanes and buses can be produced if all resources are devoted to airplanes? If ten less airplanes are produced, how many buses can be produced? 20 less? Etc. Construct a table, and then graph it. It is helpful to include in your table the resources being devoted to the production of each good as well as the total amounts of labor and steel being used.)
Airplanes (A) Buses (B) Labor A Labor B Labor (Total) Steel A Steel B Steel (Total)
60 0 120 0 120 60 0 60
50 20 100 20 120 50 40 90
40 40 80 40 120 40 80 120
30 45 60 45 105 30 90 120
20 50 40 50 90 20 100 120
10 55 20 55 75 10 110 120
0 60 0 60 60 0 120 120

b. Is the production of 40 airplanes and 40 buses feasible? Efficient? What about 60 airplanes and 60 buses?

c. What can be said about the utilization of resources when 20 airplanes and 20 buses are produced?

d. What is the opportunity cost of increasing the production of airplanes from 50 to 60? From 0 to 10 airplanes?

Reference no: EM1364216

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