Elif can produce 8 cakes or 80 cookies in 1 hour. Burak can produce 10 cakes or 20 cookies in 1 hour. a) Draw the PPF lines for Elif and Burak. b) If each spends 30 minutes of each hour for producing cakes and 30 minutes for producing cookies, how many cakes and cookies does each produce? c) What is the opportunity cost of producing cakes for Elif? What is the opportunity cost of producing cakes for Burak? d) What is the opportunity cost of producing cookies for Elif? What is the opportunity cost of producing cookies for Burak? e) Who has a comparative advantage in producing cakes and who has a comparative advantage in producing cookies? f) On the PPF lines, show what Elif produces and what Burak produces when they specialize. g) Suppose that they set the exchange price as 1 Cake
=5
Cookies. If they specialize and trade, show an exchange situation that is beneficial for both (compared to the situation you found in part (b))? 2- (10 pts) a. What are the factors that affect the supply of a good or service? b. What are the factors that affect the demand of a good or service? 3-

Answers

Answer 1

For Elif:

(0,80) (8,0)

For Burak:

(0,20) (10,0)

How calculate this?

a) To draw the PPF lines for Elif and Burak, we can use the information given about the number of cakes and cookies they can produce per hour. We can plot the number of cakes on the x-axis and the number of cookies on the y-axis, and then plot the combinations of cakes and cookies that they can produce per hour.

For Elif:

(0,80) (8,0)

For Burak:

(0,20) (10,0)

b) If each spends 30 minutes of each hour producing cakes and 30 minutes producing cookies, we can calculate their production using the following proportion:

For Elif:

Cakes = 8 cakes/hour * 30 minutes/60 minutes = 4 cakes

Cookies = 80 cookies/hour * 30 minutes/60 minutes = 40 cookies

For Burak:

Cakes = 10 cakes/hour * 30 minutes/60 minutes = 5 cakes

Cookies = 20 cookies/hour * 30 minutes/60 minutes = 10 cookies

c) The opportunity cost of producing cakes for Elif is the number of cookies that must be given up in order to produce one additional cake. Using the PPF, we can see that the opportunity cost of producing one cake for Elif is 10 cookies (80 cookies / 8 cakes).

The opportunity cost of producing cakes for Burak is the number of cookies that must be given up in order to produce one additional cake. Using the PPF, we can see that the opportunity cost of producing one cake for Burak is 2 cookies (20 cookies / 10 cakes).

d) The opportunity cost of producing cookies for Elif is the number of cakes that must be given up in order to produce one additional cookie. Using the PPF, we can see that the opportunity cost of producing one cookie for Elif is 0.125 cakes (8 cakes / 64 cookies).

The opportunity cost of producing cookies for Burak is the number of cakes that must be given up in order to produce one additional cookie. Using the PPF, we can see that the opportunity cost of producing one cookie for Burak is 0.5 cakes (10 cakes / 20 cookies)

e) Elif has a comparative advantage in producing cakes since her opportunity cost of producing cakes is lower than Burak’s. Burak has a comparative advantage in producing cookies since his opportunity cost of producing cookies is lower than Elif’s.

f) On the PPF lines, Elif will produce the most efficient combinations of cakes and cookies at the point where she reaches the highest level of production on the PPF. Similarly, Burak will produce the most efficient combinations at the point where he reaches the highest level of production on the PPF.

g) When Elif specializes in producing cakes and Burak specializes in producing cookies, they can trade their surplus products at a rate of 1 cake for x number of cookies. The number of cookies for 1 cake can be determined by their opportunity cost. So for Elif, the opportunity cost of 1 cake is 10 cookies and for Burak is 2 cookies. Therefore, Elif will be willing to trade 1 cake for at least 10 cookies, and Burak will be willing to trade 1 cake for at most 2 cookies.

What is meant by production possibility frontier?

The Production Possibilities Frontier (PPF) is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. The PPF captures the concepts of scarcity, choice, and tradeoffs.

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