Use the following Table to answer the question : Table 3-5
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

-Refer to Table 3-5. Which of the following represents Iceland's production possibilities frontier when 100 labor hours are available?

Question

Use the following Table to answer the question : Table 3-5
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.
 
-Refer to Table 3-5. Which of the following represents Iceland's production possibilities frontier when 100 labor hours are available?

Quizplus · Accepted Answer

When Iceland produces only coolers with 100 labor hours, it can produce 125 coolers. When Iceland produces only radios with 100 labor hours, it can produce 50 radios. The slope of the production possibility frontier when only coolers or radios are produced is the opportunity cost of one good in terms of the other, which in this case is -1/2. From point A, when Iceland produces 100 coolers, it is using all 100 labor hours and therefore it cannot produce any radios. From point B, when Iceland produces 50 radios, it is using all 100 labor hours and therefore it cannot produce any coolers. Therefore, Iceland's production possibilities frontier when 100 labor hours are available is the straight line connecting point A and point B, which has a slope of -2 and passes through the midpoint of the vertical axis, which corresponds to 62.5 coolers. The correct graph is option C.

Use the Following Table to Answer the Question : Table