Question

On the basis of the following production possibilities tables for two countries, North Cantina and South Cantina.

North Cantina Production Possibilities
A B C D E F
Capital Goods 5 4 3 2 1 0
Consumer Goods 0 10 18 24 28 30
South Cantina Production Possibilities
A B C D E F
Capital Goods 5 4 3 2 1 0
Consumer Goods 0 8 15 21 25 27
Refer to the tables. Suppose that resources in North Cantina and South Cantina are identical in quantity and quality. We can conclude that:_____.
A. North Cantina has better technology than South Cantina in producing consumer goods but not capital goods.
B. South Cantina has better technology than North Cantina in producing both capital and consumer goods.
C. North Cantina has better technology than South Cantina in producing both capital and consumer goods.
D. North Cantina is growing more rapidly than South Cantina.

Answer 1

A

Step-by-step explanation:

The Production possibilities frontiers is a curve that shows the various combination of two goods a company can produce when all its resources are fully utilised.

The PPC is concave to the origin. This means that as more quantities of a product is produced, the fewer resources it has available to produce another good. As a result, less of the other product would be produced. So, the opportunity cost of producing a good increase as more and more of that good is produced.

To determine which country has a better technology in production, the opportunity cost has to be calculated. The country with the lower opportunity cost has the better technology

At point B for North Cantina:

The opportunity cost of producing one 4 units of capital good = 10/4 = 2.5 units of consumer goods

The opportunity cost of producing 10 units of consumer good = 4/10 = 0.4 units of capital goods

At point B for South Cantina

The opportunity cost of producing one 4 units of capital good = 8/4 = 2units of consumer goods

The opportunity cost of producing 8 units of consumer good = 4/8 = 0.5 units of capital goods

South Cantina has a lower opportunity cost in the production of capital goods while North Cantina has a lower opportunity cost in the production of consumer goods