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Worked Problems
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1
Suppose that Russ has budgeted $20 a month to buy candy bars, music downloads, or some combination of each. If Russ buys only candy bars he can obtain 40 bars a month; if he buys only downloads, he can buy 20 a month.
  1. What is the price of a candy bar?
  2. What is the price of a music download?
  3. What is the opportunity cost of a music download?
  4. What is the opportunity cost of a candy bar?
  5. Would the opportunity cost of each good change if Russ decided to increase his monthly budget to $30 for the two items?

2
Suppose that a nation's production possibilities can be represented by the table below:
Production Alternatives:
ProductsABCDE
Food0481216
Clothing20181480

 
  1. What is the maximum amount of food this economy can produce? How much clothing can it produce at this point?
  2. If the economy is producing at alternative C, what is the cost of one more unit of food?
  3. If the economy is producing at alternative C, what is the cost of one more unit of clothing?
  4. Is this economy subject to the law of increasing opportunity costs? How can you tell?
  5. Suppose the economy is currently producing 4 units of food and 16 units of clothing. Is this economy producing efficiently?






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