Production Possibilities

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Production Possibilities
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Production Choices

• Consider decision making at Mercedes Benz
• Production of 2 Lines
• M Class
• R Class
• Choose between which vehicles are produced on the
  production line

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Production Choices
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Production Choices
What do we assume about the trade-off in the
production of these two products?
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Production Choices
Draw the Production Possibilities Frontier
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Production Possibilities
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Why does the diagram look like this?

• What can we say about the production of one line
  relative to the other?
• That is how does the opportunity cost change as
  we change the product mix?
• For example, as we increase the output of M-class
  vehicles and decrease R-class output
• Or, Why is the PPF a straight line?

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A Different Scenario
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A New PPF
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Why this Shape?

• What happens as we change production levels?
• What kind of inputs do we have?
• What do they contribute to the production of each
  product line?
• Are all inputs equally productive?
• Are all inputs equally productive for producing
  both product lines?