Question

You are getting ready to open The Shoe Hut, but you need to need to determine whether you have the absolute or comparative advantage in the production of specific items. This will help you determine which product is the best for specialization.

Your production possibilities are as follows:
• You have the resources to produce up to 15 running shoe inserts.
• You have the resources to produce up to 10 hiking boot inserts.
• For every 2 hiking boot inserts produced, you give up the production of 3 running shoe inserts.

Your production possibilities schedule will help you determine:
• your opportunity costs.
• your best options for production.

1. Using the information that you learned about your ability to produce running shoe inserts and hiking boot inserts, complete your production possibilities schedule. (5 points)
2. Use the information from your production possibilities schedule to create your production possibilities curve by filling in the following graph. Use textboxes to insert text, and use lines and circles from the shapes function to illustrate your production possibilities. Be sure to mark points A through F on the graph. (5 points)
3. Based on the data within your schedule and curve, are you using your resources efficiently? Support your answer using the data presented. (5 points)
4. Based on the information you used to create your schedule and curve, which product would you recommend the Shoe Hut focus on, and why? Provide details that support your answer. (5 points)

Answer 1

1. Production Possibilities Schedule:

| Running Shoe Inserts | Hiking Boot Inserts |
|----------------------|---------------------|
| 15 | 0 |
| 12 | 2 |
| 9 | 4 |
| 6 | 6 |
| 3 | 8 |
| 0 | 10 |

2. Production Possibilities Curve:

[Inserting textboxes and shapes to illustrate the curve]

A: 15 running shoe inserts, 0 hiking boot inserts
B: 12 running shoe inserts, 2 hiking boot inserts
C: 9 running shoe inserts, 4 hiking boot inserts
D: 6 running shoe inserts, 6 hiking boot inserts
E: 3 running shoe inserts, 8 hiking boot inserts
F: 0 running shoe inserts, 10 hiking boot inserts

3. Yes, the resources are being used efficiently. The production possibilities curve shows that the Shoe Hut is producing at the maximum level of output for the given resources. Any point on the curve represents the most efficient use of resources, and the Shoe Hut is producing at one of those points.

4. Based on the information presented, I would recommend that the Shoe Hut focus on producing running shoe inserts. This is because the opportunity cost of producing hiking boot inserts is higher than the opportunity cost of producing running shoe inserts. For every 2 hiking boot inserts produced, the Shoe Hut gives up the production of 3 running shoe inserts. This means that the Shoe Hut has a comparative advantage in producing running shoe inserts. Additionally, the production possibilities curve shows that the Shoe Hut can produce up to 15 running shoe inserts, but only 10 hiking boot inserts. This further supports the recommendation to focus on running shoe inserts.