1. Betty can make either “3 bottles of wine and 0 boxes of chocolates” or “0 bottles of wine and

48 boxes of chocolates” or a combination of wine and chocolates. To answer parts (a) through

(c) of this question assume that Betty’s Production Possibility Frontier (PPF) reflects the

property of constant opportunity costs.

 

a. [10 points] Draw Betty’s PPF.

 

b. [10 points] Find Betty’s opportunity cost of a bottle of wine in terms of box(es) of

chocolates.

 

c. [10 points] Suppose Betty takes a course called WINE 103. After the semester is over

she realizes that she can now make either “12 bottles of wine and 0 boxes

of chocolates” or “0 bottles of wine and 48 boxes of chocolates” or a

combination of wine and chocolates. Find Betty’s new opportunity cost of

a box of chocolate in terms of bottle(s) of wine.

 

 

2. [10 points] Find the equilibrium price (P), quantity (Q), and revenue in a market

characterized by the following equations:

Q = 200 – 5P [demand]

Q = 5P [supply]

 

 

3. [10 points] The owner of a soccer team and local stadium has commissioned a study that

showed the demand by fans for stadium seats (per playing date) to be

P = 22 – 0.2Q

where P is the price of a ticket and Q represents the number of seats (expressed in thousands).

The local stadium seats a maximum of 50,000 per game. Assume that all seats are identical. The

current price has been set at $10 per ticket. How much revenue does the owner make at this

current price?