### Exploring Product-Mix Efficiency

4. Cuba is one of the poorest nations in the world. However, it produces a large number of athletes who capture Olympic medals. Is this athletic prowess an indication of success for the Cuban way of life, or is it a sign of folly and foolishness? Whatever position you take, argue your position in terms of the production-possibilities frontier.

## <!-- -->To run this page correctly, you need a more modern browser that understands JavaScript.<P><!--Beginning of JavaScript function checkanswer() { //var f=document.question; w=0;r1=0; r2=0; r3=0; a2="Very Good." if (f.oo.selectedIndex==3) {f.G.src=imaged[2].src;} else {f.G.src=imaged[3].src;a2="Based on your answers, when did you stop gaining more than you lost as you moved down the banana column of the production-possibilities frontier?"} if ((f.mm.value==19) && (f.nn.value==3)) {f.F.src=imaged[2].src;} else {f.F.src=imaged[3].src; a2="We lose the first and second banana and gain the fifth coconut."} if ((f.kk.value==8) && (f.ll.value==5)) {f.E.src=imaged[2].src;} else {f.E.src=imaged[3].src; a2="We lose the third banana but gain the fourth coconut."} if ((f.ii.value==6) && (f.jj.value==7)) {f.D.src=imaged[2].src;} else {f.D.src=imaged[3].src;a2="We lose the fourth banana but gain the third coconut."} if ((f.gg.value==4) && (f.hh.value==20)) {f.C.src=imaged[2].src;} else {f.C.src=imaged[3].src; a2="We lose the fifth banana, but gain the first and second coconuts."} if (f.ff.value==37) {f.B.src=imaged[2].src;} else {f.B.src=imaged[3].src; a2="To find the value of five bananas, we have to add up the marginal values. Do not multiply--we want the value to consumers, not the total they pay.";} if (f.aa.value==0) w++; if (f.bb.value==2) w++; if (f.cc.value==3) w++; if (f.dd.value==4) w++; if (f.ee.value==5) w++; if (w==5) {f.A.src=imaged[2].src;} else {f.A.src=imaged[3].src; a2="We need to get the production-possibilities frontier correct before we can answer anything else.";} f.comment.value =a2; } //-End of JavaScript- -->

5. Suppose the economy consists of four individuals who produce as follows:

 Bananas Coconuts Dave 2 or 1 Ed 1 or 1 Fred 1 or 1 Greg 1 or 2

Construct their production-possibilities frontier:

 Bananas Coconuts 5 4 3 2 0

Below are their demand curves for bananas and coconuts:

 Bananas Coconuts Quantity Willingness to pay Quantity Willingness to pay 1 \$10 1 \$11 2 9 2 9 3 8 3 7 4 6 4 5 5 4 5 3

What is the total value of five bananas?

Let us see what happens if we move along the production-possibilities frontier:
Moving from 5 to 4 bananas results in a loss of value of \$ for bananas and a gain in value of \$ for coconuts.

Moving from 4 to 3 bananas results in a loss of value of \$ for bananas and a gain in value of \$ for coconuts.

Moving from 3 to 2 bananas results in a loss of value of \$ for bananas and a gain in value of \$ for coconuts.

Moving from 2 to 0 bananas results in a loss of value of \$ for bananas and a gain in value of \$ for coconuts.

The point on the production-possibilities frontier that is economically efficient is the point at which bananas are at:

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