EC 201 Student Name:EC 201 Student Name: Cal Poly Pomona Class Meeting Time: Spring, 2007Dr. BresnockHomework Assignment 2 (25 points)1. The Riverdale city council hires a group of experts in order to estimate the productionpossibilities of the limited amount of undeveloped land that lies within their jurisdiction. Theexperts determine that the following production alternatives are possible at this point in time. Rice (millions of lbs) Houses 0 105 10 100 20 90 30 75 40 55 50 30 60 0(a) Does the production possibilities frontier for rice and houses reflect the law of increasingopportunity costs? Support your answer with verbal and graphical explanations? (Be certainto include a definition of the law of increasing opportunity costs in your answer.) Calculatethe opportunity cost associated with increasing the amount of rice production by units of 10million pounds at a time.(b) Now imagine that a new higher yielding rice seeds make it possible to triple the amount of ricethat can be produced with the existing undeveloped land in Riverdale. Graph the newproduction possibilities. Calculate the opportunity cost associated with increasing the amountof rice production by units of 10 million pounds at a time. Compare the opportunity costs in(b) with those in (a) and briefly comment on this comparison.(c) Now suppose that Riverdale city council does an analysis of the demand for rice and housesusing the original PPC information in part (a), and finds that originally 40 million pounds ofrice and 55 houses are demanded. Explain verbally and graphically the impact each of thefollowing events will have on Riverdale’s production possibilities. (Draw a separate graph foreach.)(1) The Federal government requires the city of Riverdale it designate 20% of itsundeveloped land for a new airport project.(2) Engineers and water specialists hired by the Riverdale city council determine that theamount of water necessary for the original rice production estimates is twice the watersupply available for agricultural purposes.(3) A prolonged nationwide recession occurs causing high unemployment, unusedcapacity, etc. in all industries.(4) Forecasters for Riverdale estimate that 150 houses will be demanded due to populationgrowth
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