# Cashews (thousands of pounds)

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 Possible Output Combinations Cashews (thousands of pounds) Almonds (thousands of pounds) A 35 0 B 30 20 C 25 35 D 20 47 E 15 57 F 10 64 G 5 68 H 0 70

Table 2

1. Refer to Table 2. The Nut House produces only cashews and almonds. The table above shows the maximum possible output combinations of the two nuts using all resources and currently available technology.

1. Graph The Nut House's production possibilities frontier. Put almonds on the horizontal axis and cashews on the vertical axis. Be sure to identify the output combination points on your diagram.

2. Suppose The Nut House is currently producing at point C. What is the opportunity cost of producing an additional 12,000 pounds of almonds?

3. Suppose The Nut House is currently producing at point C. What happens to the opportunity cost of producing more and more almonds? Does it increase, decrease or remain constant? Explain your answer.

4. Suppose The Nut House is currently producing at point F. What happens to the opportunity cost of producing more and more cashews? Does it increase, decrease or remain constant? Explain your answer.

5. Suppose The Nut House is plagued by a variety of white root-rot disease, which destroys cashew trees but not almond trees. Show in a graph what happens to its PPF.

b. 5,000 pounds of cashews

c. It increases. For example to move to D, The Nut House has to give up 5,000 pounds of cashews to produce an additional 10,000 pounds of almonds. For each additional 5,000 pounds of cashews foregone, the payoff in terms of almonds gets progressively smaller.

d. It increases. Each time it wants to produce an additional 5,000 pounds of cashews, more and more almonds must be given up.

e.