Refer to Scenario 1 . Assume this economy could either be at ...

[APUS57]

Refer to Scenario 1 . Assume this economy could either be at Point B or Point C. From which of these points is it more costly to produce more crabs? Explain your answer.
 
  What will be an ideal response?

Question 2

Tying salaries of top managers to the profits of the firm is a way to reduce the effect of the principal-agent problem.
 
  Indicate whether the statement is true or false

[yifu223]

Answer to Question 1

It's more costly to produce more crabs from Point C than it is to produce more crabs from Point B. The reason is that as you move up the production possibilities frontier the more crabs you produce the greater the amount of fish the economy will have to give up to produce them. For example from Point B the opportunity cost of producing 15 more crabs is twenty fish. However, if we start from Point C and wish to produce 15 more crabs we have to give up 30 fish.

Answer to Question 2

TRUE

[APUS57]

Thank you

[yifu223]

Happy to help you