Micro-Economics Question

Question-1

Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below: (3 Marks)

Tables Chairs
0 200
50 180
60 160
70 140
80 120
90 0

⦁ Explain production possibilities frontier (PPF) by putting tables on the Horizontal axis and chairs on the vertical axis. What is Bill’s opportunity cost of producing one additional table?
⦁ Currently Bill is producing 70 tables and 140 chairs.
⦁ Is this allocation of resources efficient? Why?
⦁ Show this allocation on the graph and advise Bill how he can be more efficient.
Question-2

Explain by applying these concepts with examples. (2 Marks)
⦁ Rational people respond to incentives
⦁ Role of prices in allocating resources