1. Zephyria is a country that produces microchips and textiles. The resources in Zephyria are not equally adaptable to the production of both goods.
Zephyria is currently operating at full employment.
The economy of Zephyria produces only microchips and textiles.
Draw a correctly labeled graph of the production possibilities curve (PPC) for Zephyria, which we will call Figure 1, and show each of the following.
A concave production possibilities curve, with microchips on the horizontal axis and textiles on the vertical axis
A point labeled A that represents an efficient level of production
A point labeled B that represents an inefficient level of production
A point labeled C that represents an unattainable level of production
Explain the shape of the production possibilities curve you drew in part A.
Table 1: Maximum Output per Day with All Resources
Country | Microchips (units per day) | Textiles (units per day) |
|---|---|---|
Zephyria | 20 | 80 |
Xanadu | 10 | 20 |
Now assume that Zephyria can trade with a neighboring country, Xanadu. The data in Table 1 shows the maximum daily output of microchips or textiles for each country if they use all their resources.
Calculate the opportunity cost of producing one unit of microchips in Zephyria. Show your work.
Which country has the comparative advantage in the production of textiles? Explain.
Identify a specific number of units of textiles that could be traded for one unit of microchips that would be mutually beneficial to both Zephyria and Xanadu.
Table 2: Costs and Benefits of Pollution Cleanup in Zephyria
Quantity of Pollution Removed | Total Benefit ($) | Total Cost ($) |
|---|---|---|
0 | 0 | 0 |
1 | 100 | 50 |
2 | 190 | 110 |
3 | 270 | 180 |
4 | 340 | 260 |
Zephyria is considering implementing a program to clean up pollution caused by textile production. The government has estimated the total benefits and total costs of cleaning up different quantities of pollution, as shown in Table 2.
Calculate the marginal benefit of removing the third unit of pollution. Show your work.
Using marginal analysis, identify the optimal quantity of pollution to remove. Explain.
Required Graph Drawings
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