Table 13 Shows the Hypothetical Trade-Off Between Different Combinations of Brushes

question 125

Multiple Choice

Table 1.3 shows the hypothetical trade-off between different combinations of brushes and combs that might be produced in a year with the limited capacity for Country X, ceteris paribus. Complete the table by calculating the required opportunity costs for brushes and combs. On the basis of your calculations in Table 1.3, in the production range of 21 to 23 brushes the opportunity cost of producing more comb in terms of brushes is

• A) 1/21.
• B) 21/23.
• C) 1/2.
• D) 4.Shifting resources toward more brushes (2) requires a drop in the production of combs (1). Therefore for each 1 brush, ½ a comb is given up (1 divided by 2).

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Definitions:

Increasing Returns to Scale

Occurs when an increase in all inputs by a certain percentage causes a more than proportional increase in output.

Decreasing Returns to Scale

Decreasing returns to scale occur when an increase in all inputs leads to a less than proportional increase in output, showing that the firm becomes less efficient as it scales up production.

Increasing Opportunity Costs

A situation where the cost of forgoing the next best alternative increases as more resources are devoted to an activity.

Scale Reduction

The process of decreasing the size or output level of operations in a business or economic system.