Graph of a production possibility frontier for country X showing watches daily production on the y-axis and MP3 player daily production on the x-axis. Point B is indicated at 10 MP3 players and 6 watches, point C at 15 MP3 players and 4 watches. Point G is outside of the curve at the point 15,7
Consider the Production Possibility Frontier for country X producing 2 groups of goods, MP3 players and watches. The opportunity cost of moving from the combination of MP3 players and watches B to C is

4 WATCHES.
15 MP3 PLAYERS

5 MP3 PLAYERS

2 WATCHES.

18. Because of __ if a city government decides to spend money on beautifying its downtown and attracting tourism to its city when no money has been devoted to those efforts before, then gains in tourism may be significant.

the production possibility frontier.
THE LAW OF DIMINISHING RETURNS

BEAUTIFICATION IS A RELATIVELY LOW EXPENSE

THE OPPORTUNITY COST OF THE PRODUCTION POSSIBILITY TRADEOFF

19. Hal and Gavin are siblings who own a mattress recycling company. Demand has been increasing for their services and the brothers are contemplating whether to open up an additional mattress drop off site in the downtown area. They estimate it would add $1 million in expenses with their profit increasing by $150 thousand each year for the next 5 years (all other things equal). Hal and Gavin decide

TO NOT OPEN A MATTRESS DROP OFF SITE DOWNTOWN BECAUSE THE MARGINAL COSTS PROVED TO BE TOO HIGH.
TO GO AHEAD WITH THE PROJECT BECAUSE IT BRINGS ADDITIONAL REVENUE

TO OPEN A MATTRESS DROP OFF SITE DOWNTOWN BECAUSE THE MARGINAL COST OF THE NEW LOCATION IS LESS THAN OTHER SIMILAR PROJECTS.

TO OPEN A MATTRESS DROP OFF SITE DOWNTOWN BECAUSE THE EXPECTED MARGINAL BENEFIT IS GREATER THAN THE ESTIMATED MARGINAL COST.

20. Scarcity is imposed on individual households in the form of income and

LIMITED PRODUCTION.
UTILITY.

SUNK COSTS.

THE PRICES OF THE GOODS THAT A PERSON MAY PURCHASE.

Sample Solution