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QUESTION 1 (12 POINTS) Given the following chart answer the questions below, as...

Jun 8, 2024

Sure, let's address each part of the question step by step. Question A Draw the production possibilities frontier (PPF) with Oil Changes on the Y-axis.

Solution

Plot Points: Plot the given points (A, B, C, D, E, F) on a graph with Oil Changes on the Y-axis and Brake Repairs on the X-axis

Connect Points: Connect the points to form the PPF

Answer

The PPF is a downward-sloping curve connecting points A (20,0), B (18,1), C (15,2), D (11,3), E (6,4), and F (0,5).

Key Concept

Production Possibilities Frontier (PPF)

Explanation

The PPF shows the maximum possible output combinations of two goods that can be produced with available resources and technology.

Question B Is Grismer able to perform 15 Oil changes and 3 Brake repairs? What does this combination of output suggest about the use of resources?

Solution

Check Feasibility: Compare the combination (15,3) with the PPF points

Resource Use: Determine if the combination is on, inside, or outside the PPF

Answer

No, Grismer cannot perform 15 Oil changes and 3 Brake repairs as this combination is outside the PPF, indicating it is not feasible with the current resources.

Key Concept

Feasibility on PPF

Explanation

Combinations outside the PPF are not feasible given the current resources and technology.

Question C Is Grismer able to perform 6 Oil changes and 3 Brake repairs? What does this combination of output suggest about the use of resources?

Solution

Check Feasibility: Compare the combination (6,3) with the PPF points

Resource Use: Determine if the combination is on, inside, or outside the PPF

Answer

Yes, Grismer can perform 6 Oil changes and 3 Brake repairs as this combination is inside the PPF, indicating underutilization of resources.

Key Concept

Underutilization of Resources

Explanation

Combinations inside the PPF indicate that not all resources are being used efficiently.

Question D What happens to the opportunity cost of Oil changes production as Grismer performs more Oil changes?

Solution

Opportunity Cost: Calculate the opportunity cost of producing additional Oil changes

Increasing Cost: Observe the trend as more Oil changes are produced

Answer

The opportunity cost of producing more Oil changes increases as Grismer performs more Oil changes.

Key Concept

Increasing Opportunity Cost

Explanation

As production shifts towards more Oil changes, more Brake repairs must be sacrificed, indicating increasing opportunity costs.

Question E What happens to the opportunity cost of Brake repairs production as Grismer performs more Brake repairs?

Solution

Opportunity Cost: Calculate the opportunity cost of producing additional Brake repairs

Increasing Cost: Observe the trend as more Brake repairs are produced

Answer

The opportunity cost of producing more Brake repairs increases as Grismer performs more Brake repairs.

Key Concept

Increasing Opportunity Cost

Explanation

As production shifts towards more Brake repairs, more Oil changes must be sacrificed, indicating increasing opportunity costs.

Question F What is the opportunity cost of expanding brake repairs production from 2 to 3?

Solution

Opportunity Cost Calculation: Compare the points C (15,2) and D (11,3)

Difference: Calculate the difference in Oil changes

Answer

The opportunity cost of expanding Brake repairs from 2 to 3 is 4 Oil changes.

Key Concept

Opportunity Cost Calculation

Explanation

The opportunity cost is the amount of Oil changes sacrificed to produce one additional Brake repair.

Question G What would be the opportunity cost of producing 1 additional oil change if Grismer were currently producing 14 Oil changes and 2 Brake repairs?

Solution

Opportunity Cost Calculation: Compare the points between 14 Oil changes and 2 Brake repairs

Difference: Calculate the difference in Brake repairs

Answer

The opportunity cost of producing 1 additional Oil change from 14 Oil changes and 2 Brake repairs is approximately 0.33 Brake repairs.

Key Concept

Marginal Opportunity Cost

Explanation

The marginal opportunity cost is the amount of Brake repairs sacrificed to produce one additional Oil change.

Question H Suppose Grismer acquires an additional bay to perform oil changes and brake repairs. What happens to its PPC?

Solution

Additional Resources: Consider the impact of additional resources on the PPF

Shift: Determine the direction of the shift in the PPF

Answer

The PPF will shift outward, indicating an increase in the production capacity for both Oil changes and Brake repairs.

Key Concept

Outward Shift of PPF

Explanation

Acquiring additional resources increases the production capacity, shifting the PPF outward.