Examine the production possibilities curve for Microville below.





(a) Does this production possibilities curve represent constant opportunities or increasing opportunity cost? Explain.

(b) Microville decided to produce 10 boats, what is their opportunity cost? Explain.

(c) Explain what would have to happen for Microville to be able to produce 15 boats and 15 cars.

(d) Assume there is another country called Macroville. If they use all of their resources they can either produce a maximum or 20 boats or 30 cars. Which country between Macroville and Microville has an absolute advantage in producing boats? Explain.

(e) Assume there is another country called Macroville. If they use all of their resources they can either
produce a maximum or 20 boats or 30 cars. If both countries were to specialize in producing either
boats or cars, which good would each country produce? Explain.

Answer:

Out of all possible outcomes, it would most likely answer "d" as other options do not seem to match as well as answer D.

Explanation:

Below are the answers to some of these questions.

(a) The production possibilities curve for Microville represents increasing opportunity cost. This is because as more of one good is produced, the opportunity cost of producing another unit of that good increases. For example, if Microville produces more boats, the opportunity cost of producing another boat increases because they have to give up more cars to produce another boat.

(b) If Microville decided to produce 10 boats, their opportunity cost would be 10 cars. This is because for every boat they produce, they have to give up one car. Therefore, the opportunity cost of producing 10 boats is 10 cars.

(c) In order for Microville to be able to produce 15 boats and 15 cars, they would need to increase their production possibilities. This could be done through an increase in resources, such as labor or capital, or through technological advancements that increase productivity.

(d) Macroville has an absolute advantage in producing boats because they can produce a maximum of 20 boats while Microville can only produce a maximum of 15 boats. Absolute advantage is the ability to produce more of a good or service than another producer using the same amount of resources.

(e) If both countries were to specialize in producing either boats or cars, Microville should specialize in producing cars and Macroville should specialize in producing boats. This is because Microville has a comparative advantage in producing cars, as they can produce cars at a lower opportunity cost than Macroville. Similarly, Macroville has a comparative advantage in producing boats, as they can produce boats at a lower opportunity cost than Microville. By specializing in the good they have a comparative advantage in, both countries can produce more of that good and trade with each other to increase their overall production and consumption.

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