Given the following options to produce two goods (guns and butter) using a fixed amount of resources and technology, and assuming full-employment:
Option A --- 0 guns, 10 butter
Option B --- 1 gun, 9 butter
Option C --- 2 guns, 7 butter
Option D --- 3 guns, 4 butter
Option E --- 4 guns, 0 butter
1. Draw the PPF.
2. State the opportunity cost of the first gun produced, in terms of butter sacrificed.
3. State the opportunity cost of the second gun produced, in terms of butter sacrificed.
4. Why is the opportunity cost of gun #2 higher than the opportunity cost of gun #1? Yes, the opportunity cost tends to increase, but why?
5. What would have to happen for the economy above to be able to produce Option F --- 4 guns and 10 butter? Be specific.
