Diagrams and definitions should be used where applicable.

1. A country’s production possibility frontier of cola and pizza is given.

(A) Where is the country unable to produce cola or pizza or both? (1 Mark)

(B) How does the country face the changes in opportunity costs as it possibly produces various combinations? (1 Mark)

(C) Where does the country produce when economic downturn hits and/or resource is being inefficiently used? (1 Mark)

(D) Where does “There is no such thing as a free lunch” principle not apply? (1 Mark)

(E) When a technological advancement takes place for cola, what are the possible impacts on the frontier? (1 Mark)

2. Explain how rational business people make a decision. Should (a) total benefit should be higher or lower than, or equal to, total costs for them to make a rational decision? Provide an example, which is unavailable from the prescribed textbook or lecture slides. (3 Marks for explanation and 2 Marks for a good example)

3. Two producers have two different production possibility frontiers for wheat and rice. It is said that they are unable to produce beyond the frontiers. With the given set of resources and technology, are they ever be able to go beyond the frontiers if they want to consume more of wheat and rice than they produce? (3 Marks for arguments and 2 Marks for explanation)