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= 0.333 suv
1 suv = $\frac{3}{1}$ sedans

1. graph the following production possibilities curves for each producer

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

1. what is lincolns opportunity cost of making sedans?

Explanation:

Step1: Calculate Ford's sedan opportunity cost

Opportunity cost of 1 sedan = $\frac{\text{Max SUV production}}{\text{Max sedan production}} = \frac{8}{16} = \frac{1}{2}$

Step2: Calculate Lincoln's sedan opportunity cost

Opportunity cost of 1 sedan = $\frac{\text{Max SUV production}}{\text{Max sedan production}} = \frac{5}{15} = \frac{1}{3}$

Step3: Define PPF endpoints for Ford

• If Ford produces only sedans: (0 SUVs, 16 sedans)
• If Ford produces only SUVs: (8 SUVs, 0 sedans)

Step4: Define PPF endpoints for Lincoln

• If Lincoln produces only sedans: (0 SUVs, 15 sedans)
• If Lincoln produces only SUVs: (5 SUVs, 0 sedans)

Answer:

1. Production Possibilities Curves (PPF):

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

1. Ford's opportunity cost of making 1 sedan is $\frac{1}{2}$ SUV.
2. Lincoln's opportunity cost of making 1 sedan is $\frac{1}{3}$ SUV.