Question 1

Suppose a student can produce either soy cheese pizza or craft beer. According to the PPF shown, what does a bowed-out (concave) PPF indicate about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 2

Given the following marginal cost (MC) table for soy cheese pizza:

$$
\begin{array}{c|c}
	ext{Pizza} & 	ext{Marginal Cost} \
\hline
1 & 1 \
2 & 2 \
3 & 3 \
4 & 4 \
\end{array}
$$

What is the opportunity cost of producing the 3rd soy cheese pizza?

Accepted Answer

3 units of craft beer

Question 3

Allocative efficiency is achieved when which of the following conditions is met?

Accepted Answer

$$MB = MC$$

Question 4

If the marginal benefit (MB) of the 4th soy cheese pizza is 2 and the marginal cost (MC) is 3, what should the student do to achieve allocative efficiency?

Accepted Answer

Produce less soy cheese pizza

Question 5

Chuggy's marginal cost of binge drinking for the 3rd hour is 3 percentage points. If his marginal benefit for the 3rd hour is 7 percentage points, what does this imply?

Accepted Answer

Chuggy should binge drink more hours to maximize efficiency.

Question 6

If Chuggy achieves allocative efficiency at 5 hours of binge drinking per week, what does this mean about his marginal benefit and marginal cost at that point?

Accepted Answer

$$MB = MC$$

Question 7

Suppose the marginal benefit curve for binge drinking is linear and downward sloping, while the marginal cost curve is upward sloping. What happens to allocative efficiency if the marginal cost of binge drinking increases due to stricter university policies?

Accepted Answer

Allocative efficiency is achieved at fewer hours of binge drinking.

Question 8

If the opportunity cost of producing soy cheese pizza increases as more pizzas are produced, what does this imply about the shape of the PPF?

Accepted Answer

The PPF is bowed out (concave to the origin).

Question 9

A student is currently producing at a point inside the PPF. What does this indicate about resource use?

Accepted Answer

Resources are not being used efficiently.

Question 10

If the marginal benefit of the 6th hour of binge drinking is 2 percentage points and the marginal cost is 4 percentage points, what should Chuggy do to maximize his grade?

Accepted Answer

Reduce binge drinking to fewer than 6 hours.

Question 11

Which of the following best describes the law of increasing opportunity cost?

Accepted Answer

As more of one good is produced, the opportunity cost of producing additional units increases.

Question 12

If the marginal benefit curve for soy cheese pizza is steeper than the marginal cost curve, what does this imply about the optimal quantity produced?

Accepted Answer

The optimal quantity is where $$MB = MC.$$

Question 13

If a student moves from producing 2 to 3 soy cheese pizzas and the marginal cost increases from 2 to 3, what does this demonstrate?

Accepted Answer

Increasing marginal opportunity cost.

Question 14

Suppose the marginal benefit of the 2nd soy cheese pizza is 5 and the marginal cost is 2. What should the student do to maximize allocative efficiency?

Accepted Answer

Produce more soy cheese pizza.

Question 15

If the PPF for soy cheese pizza and craft beer shifts outward, what does this indicate?

Accepted Answer

There has been economic growth or an improvement in resources.

Production Possibility Frontier (PPF), Marginal Opportunity Costs, and Allocative Efficiency

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