A nation with fixed quantities of resources is able to produ

A nation with fixed quantities of resources is able to produce any of the ofllowing combinations of bread and ovens: These figures assume that a certain number of previously produced ovens arc available in the current period ofr faking bread. Using the data in the table, graph the ppf (with ovens on the vertical axis). Does the principle of \"increasing opportunity cost\" hold in this nation? Explain briefly. (Hint: What happens to the opportunity cost of bread-measured in number of ovens-as bread production increases?) If this country chooses to produce both ovens and bread, what will happen to the ppf over time? Why? Now suppose that a new technology is discovered that allows twice as many loaves of bread to be baked in each existing oven. Illustrate (on your original graph) the effect of this new technology on the ppf. Suppose that beofre the new technology is introduced, the nation produces 22 ovens. After the new technology is introduced. the nation produces 30 ovens. What is the effect of the new technology on the production of bread? (Give the number of loaves beofre and after the change.)

Solution

a) Given the data

50

40*

30 *   

20 *

10 *

0 10 20 30 40 50 60 70 * 80

b) Yes the opportunity cost is increasing as we can see

Opportunity cost = 0/75 =0

12/60=0.25

22/45=0.48

30/30=1

36/50=2.4

40/0= infinity

This is increasing, so opportunity cost is also increasing

BY,

Nishant Bhatt