Question: Consider the Alpha economy, which uses its economic resources to produce only food and clothing. The following table shows Alpha economy’s production of food and clothing under the assumptions of a production possibilities model:

a) Complete the column in the table labeled “Opportunity Cost” by calculating the opportunity cost of producing less clothing relative to the corresponding gain in food. The first one is done for you.

b) In economic theory, describe what is meant by the Law (or Principle) of Increasing Opportunity Cost?

c) Why does a straight line production possibilities violate the Law of Increasing Opportunity Cost?

d) Does the Alpha economy display the Law of Increasing Opportunity Cost? Briefly explain your

e) Under the conditions stated in this example, is it possible for the Alpha economy to produce a

combination of 20 million tons of food and 35 million pieces of clothing in a year? Why or why not?

f) Is it possible for the Alpha economy to produce a combination of 10 million tons of food and 15

million pieces of clothing in a year? Why or why not?

g) Suppose that Alpha develops and obtains a new technology that enables it to produce more food

and clothing with the same resource set and the same period of time. How would this affect Alpha’s

production possibilities? Would there be any change to Alpha’s production possibilities curve? If so,

describe the change. If not, why not?