Business Product Possibility - Free Sample by Experts

Question: Describe about the Business Product Possibility. Answer: 1. (a) Production possibility frontier is mainly used to graph the combination of the amounts of two commodities that can be produced by using the similar amount of each factor of production. The production possibility curve is used to show tradeoff that is faced while allocating time to study each of two units for the final exam (Smith et al. 2012). Figure 1: Production possibility frontier (Source: Created by Author) The line or curve that is mainly used in the PPF, acts as a benchmark in order to measure efficiency. The PPF graph shows the time that is allocated among two subjects (Economics and Geography), during the final exam. The point on the graph shows the tradeoff that takes place between two units. In order to allocate more time to study economics, the individual must give up time that he is spending to study Geography (Benhabib and Nishimura 2012). Assumptions that are made in order to construct a possible combination are as follows: The amount of time as well as resources in the economy is fixed, however these can be transferred from one use to the other use The resources are used fully and competently The level of technology is assumed to be invariable Only two units are considered and the time is allocated in different proportion (Manning 2014). (b) In the above example, the time used to study geography is given up in order to allocate more time to study economics. As a result, the sacrifice of time to study geography is considered as opportunity cost. Opportunity cost is calculated as the total time of the second subject that is given up to allocate that time for the first subject (Kurzban et al. 2013). (c) Efficiency takes place when an economy is operating on the PPF. Figure: Efficiency (Source: Created by Author) The point A, B and C are the efficient combination of output that is lying on the PPF. (d) An outward shift in the production possibility curve reflects growth however; an inward shift leads to decreasing output. In this case, PPF had shifted outwards due to more education and advancement in technology. 2. (a) The factors affecting demand are as follows: The taste and preferences of the customers: After the release of the movie Finding Nemo, many people fell in love with the character Nemo and as a result, the preference increased as they wanted one clownfish in their aquarium. The taste of the individuals changed from marine fish to clown fish (Bowen and Sosa 2014). The number of customers in the market: As more and more individuals enter the market, the demand for the good also increases that they are willing to purchase. Similarly, the demand for clownfish also increased as the number of customers in the market increased. The factors affecting supply are as follows: Price of the given commodity: Price is the most important factor that helps to determine supply of clownfish. Price of clownfish and its supply are related directly. As a result, as the price of clownfish will increase the supply will also increase (Ehrenberg and Smith 2016). Prices of factors of production: As the amount allocated to factors of production is increased, the cost of production will also increase. As a result, profit decreases (Liu and Li 2014). Taxation Policy: If the government introduces tax on the sale of clownfish, it will lead to decrease in the supply of clownfish. The factors affecting elasticity are as follows: Nature of Commodity: Elasticity of demand of a commodity is generally influenced by its nature. In other words, the elasticity for clownfish will completely depend on whether the individuals will consider clownfish as a comfort, luxury or a necessity good. In this case, clownfish is considered as a luxury good rather than a necessity. Income Level: Elasticity for demand will also depend on the higher level of income as compared to lower income groups. In this case, the elasticity for higher income group will be inelastic, as the change in price will not affect their demand for clownfish (Clipperton 2016). (b) The scientists and animal rights groups worry about the regal blue tang fish species after the release of the movie Finding Dory in 2016 because unlike the clownfish that represented Finding Nemo, the scientists and aquarists will not be able to breed the blue tang that represents Dory. As a result, it will lead to severe worry, as this will lead to pressure on the species. The pressure will arise when the individuals will become interested to purchase pet blue tangs, as they were interested to purchase clownfish. Salt-water fish like Blue Tang do not breed in captivity like most other fresh water that can breed in a tank. As a result, the species of clownfish was not affected after the release of Finding Nemo in the year 2003, as the fish can be bred in captivity (Das 2015). 3. (a) The type of small business that is likely to get started is interior decorating as many people become quite happy to hire an interior decorator to decorate their house. An interior designer provides a quality interior environment and also allocates and organizes a space to suit its operation. (b) The main inputs under the factors of production are as follows: Land Land is the economic resource that is used to encompass natural resources that is found in the economy. Land is also a limited resource for most of the economies. In order to create a small business, the interior decorator requires this natural resource to build its office. Labor: Human capital is mainly represented by labor that helps to transform raw materials into customer goods. An interior decorator also requires able-bodied workers who will help to transform the raw material that is required for decorating a house as per the instruction of the decorator. An interior decorator mainly hires outside contractors to help with the work. Capital: Capital mainly represents the monetary resources that are used to purchase raw materials. Capital will help to purchase a resource that includes lighting fixtures, wallpaper as well as accessories (Goodman 2015). (c) Economic costs that are associated with the proposed business are the hidden cost that includes shipping cost. Shipping costs generally includes the cost of delivery, broker fees and authoritarian charges. The hidden cost also includes the cost related to extra furniture as well as extra costs related to painting. Interior decorator also hires outside contractors and as a result, it involves extra cost. (d) The cost that is discussed in point c refers to explicit cost. This is because explicit costs are those costs that are reported as a separate cost. The costs that are discussed involve payment made to purchase raw materials as well as employee wages and shipping cost. (e) In order to operate the business in the perfectly competitive market, it very important to determine the number of customers in the market. The interior decorator needs to consider that there are no barriers to entry or exit and there is perfect information about all the goods in the market. It also needs to consider its competitors and charge price accordingly. References Benhabib, J. and Nishimura, K., 2012. Competitive equilibrium cycles. InNonlinear Dynamics in Equilibrium Models(pp. 75-96). Springer Berlin Heidelberg. Bowen, W.G. and Sosa, J.A., 2014.Prospects for faculty in the arts and sciences: A study of factors affecting demand and supply, 1987 to 2012. Princeton University Press. Clipperton, J., 2016. Paracanthurus hepatus.UltraMarine Magazine, (58), p.22. Das, S., 2015.The Age of Stagnation: Why Perpetual Growth is Unattainable and the Global Economy is in Peril. Westland. Ehrenberg, R.G. and Smith, R.S., 2016.Modern labor economics: Theory and public policy. Routledge. Goodman, C., 2015. Glycobiology: Interior decorating.Nature chemical biology,11(11), pp.829-829. Kurzban, R., Duckworth, A., Kable, J.W. and Myers, J., 2013. An opportunity cost model of subjective effort and task performance.Behavioral and Brain Sciences,36(06), pp.661-679. Liu, K. and Li, X., 2014, October. Finding Nemo: Finding Your Lost Child in Crowds via Mobile Crowd Sensing. In2014 IEEE 11th International Conference on Mobile Ad Hoc and Sensor Systems(pp. 1-9). IEEE. Manning, R., 2014. production-possibility frontier.Production Sets, p.51. Smith, F.P., Gorddard, R., House, A.P., McIntyre, S. and Prober, S.M., 2012. Biodiversity and agriculture: production frontiers as a framework for exploring trade-offs and evaluating policy.Environmental Science Policy,23, pp.85-94.