Question

scenario 1: ford & lincoln

	ford (production per day)	lincoln (production per day)
suvs	8	5

ford:
1 sedan= 0.5 or $\frac{1}{2}$ suv
1 suv= $\frac{2}{1}$ sedan = 2

lincoln:
1 sedan= 0.3333 or $\frac{1}{3}$ suv
1 suv = $\frac{3}{1}$ sedans = 3

1. graph the following production possibilities curves for each producer ford vs lincoln

1. what is the fords opportunity cost of making sedans?

1. what is lincolns opportunity cost of making sedans?

Explanation:

Step1: Define Ford's PPF endpoints

Ford's maximum sedans: 16, maximum SUVs: 8.
Endpoints: $(0, 16)$ (0 SUVs, 16 sedans) and $(8, 0)$ (8 SUVs, 0 sedans)

Step2: Define Lincoln's PPF endpoints

Lincoln's maximum sedans: 15, maximum SUVs: 5.
Endpoints: $(0, 15)$ (0 SUVs, 15 sedans) and $(5, 0)$ (5 SUVs, 0 sedans)

Step3: Calculate Ford's sedan opportunity cost

Opportunity cost = $\frac{\text{SUVs given up}}{\text{Sedans produced}} = \frac{8}{16}$

Step4: Calculate Lincoln's sedan opportunity cost

Opportunity cost = $\frac{\text{SUVs given up}}{\text{Sedans produced}} = \frac{5}{15}$

Answer:

1. Production Possibilities Curves:

• For Ford: Plot and connect the points $(0, 16)$ and $(8, 0)$ on the graph (Sedans on y-axis, SUVs on x-axis).
• For Lincoln: Plot and connect the points $(0, 15)$ and $(5, 0)$ on the same graph.

1. Ford's opportunity cost of 1 sedan is $\frac{1}{2}$ (or 0.5) SUVs.
2. Lincoln's opportunity cost of 1 sedan is $\frac{1}{3}$ (or ~0.333) SUVs.