Assume that a country produces two goods Autos and Rice The

Assume that a country produces two goods, Autos and Rice.

The combination 15 m Autos and 20m tonnes of rice is on the country’s production possibilities frontier. Which of the following production combinations is also on the production possibilities frontier?

A. 12m Autos and 18 tonnes of rice

B. 15m Autos and 25 tonnes of rice

C. 20m Autos and 18 tonnes of rice

D. 18m Autos and 25 tonnes of rice   

Explain your answer.

Solution

15 million Auto = 20 tonnes Rice

Oppourtunity cost

1 million Auto = 1.33 tonnes Rice

1 tonnes Rice = 0.75 million Auto

A. 12 m Autos and 18 tonnes of Rice.

Oppourtunity cost

1 m Auto = 1.5 tonnes of Rice

1 tonnes rice = 0.66 m Auto

Oppourtunity cost is different from the given PPF.

(Alternatively, 12 m Auto = 12 × 1.33 tonnes Rice = 15.96 tonnes of Rice

18 tonnes of Rice = 18 × 0.75 mn Auto = 13.5 mn Auto)

Hence it does not lie on PPF

B. 15m auto and 25 tonnes of Rice

Opportunity cost

1m Auto = 1.66 tonnes of Rice

1 tonnes of Rice = 0.6 m Auto

Opportunity cost is different from given PPF.

(Alternatively, 15 m Auto = 15×1.33 tonnes of Rice = 19.95 tonnes of Rice

25 tonnes of Rice = 25 ×0.75 = 18.75 m Auto)

Hence it does not lie on PPF.

C. 20 m Auto and q8 tonnes rice

1 m Auto = 0.9 tonnes rice

1 tonnes rice = 1.11 m auto

Oppourtunity cost is different from the given PPF.

(Alternatively,20 m Auto = 20×1.33 = 26.6 tonnes of Rice

18 tonnes of Rice = 18×0.75 = 13.75 m Auto )

Hence it does not lie on PPF

D. 18 m Auto and 25 tonnes of Rice

Oppourtunity cost

1 m Auto = 1.38 tonnes of Rice

1 tonnes of Rice = 0.72 m Auto

Oppourtunity cost is different from the given PPF.

(Alternatively, 18 m Auto = 18×1.33 = 23.94 tonnes of Rice

25 tonnes of Rice = 25×0.75 = 18.75 mn of Auto)

Hence it does not lie on PPF.