BUDGET LINE AND PRODUCTION-POSSIBILITIES CURVE
1)
Nick has $48 to spend on bags of Fritos® and pizzas. If the bags of Fritos® cost $3 apiece, and
each pizza costs $12; answer the following.
a)
Draw Nick’s budget line, with correct labels.
b)
At each point on the budget line, how much money is Nick spending?
c)
What is the maximum number of items Nick can buy if he must stay on his budget line?
d)
What is the minimum number of items Nick can buy if he must stay on his budget line?
e)
Can Nick buy:
f)
2)
i)
two pizzas and nine bags of Fritos®?
ii)
three pizzas and three bags of Fritos®?
iii)
one pizza and eight bags of Fritos®?
If Nick’s budget shrinks to $24, show his new budget line?
Vandelay Industries builds yachts and sailboats. Its production alternatives are shown by the
following chart:
Type of Product
Yachts
Sailboats
a)
A
0
15
B
1
13
C
2
10
D
3
6
Draw the production-possibilities curve for Vandelay Industries.
E
4
0
3)
b)
At each point, state the opportunity cost of producing one more yacht and the
opportunity cost of producing one more sailboat.
c)
Can Vandelay Industries produce:
3 yachts and 5 sailboats?
ii)
2 yachts and 12 sailboats?
Walkerco produces bags of ravioli and tortellini. Its production alternatives are shown by the
following chart:
Type of Product
Bags of Tortellini
Bags of Ravioli
4)
i)
A
18
0
B
15
2
C
11
4
D
6
6
E
0
8
a)
Draw the production-possibilities curve for Walkerco.
b)
At each point, state the opportunity cost of producing one more bag of tortellini and the
opportunity cost of producing one more bag of ravioli.
c)
Can Walkerco produce:
i)
3 bags of ravioli and 9 bags of tortellini?
ii)
7 bags of ravioli and 7 bags of tortellini?
Why does a budget have a linear relationship, while a production-possibilities model is curved?