A small country produces military goods and civilian goods. It has the production possibilities frontier (PPF) shown in the graph. The country’s current annual production of 2,000 military goods and 4,000 civilian goods is shown on the graph.

1. Provide a reasonable estimate of the opportunity cost of civilian goods (in terms of military goods) given the current level of production.

 

 

 

 

 

 

 

2. On the graph, show the effect of a grant of foreign military assistance of 2,000 per year.
3. Suppose the country does not desire to have more military goods but still receives the military aid. How much more civilian goods could it have? Provide a numerical answer consistent with the opportunity cost provided above and show your answer on the graph, too.