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Figure 1. The Frequency Distribution of Scores on HW1. Score. NASA’s Production Possibility Frontier (PPF). Shuttles can carry….  Satellites (SAT). &. Experiments (EXP). . Lockers. Interior Payload. What is the opp cost of launching satellites using shuttles?.

Score

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Figure 1. The Frequency Distribution of Scores on HW1

Score

NASA’s Production Possibility Frontier (PPF)

### Shuttles can carry…

 Satellites (SAT)

&

Experiments (EXP)

Lockers

What is the opp cost of launching satellites using shuttles?

The opp cost is the value of experiments that could have been done instead.

That’s what’s being given up in launching satellites.

Endeavour’s Production Possibility Frontier (PPF)

Assume initially that NASA

• has 1 shuttle—Endeavour

produces 2 outputs: satellite launches (SAT)and experiments (EXP)

uses other inputs—fuel, L and other K (e.g., Cape Canaveral)

Endeavour’s Production Possibility Frontier (PPF)

Max # of

Flights

SAT

EXP

Shuttle

(# per yr)

(# per flight)

(# per flight)

Endeavour

2

5

50

What is the opportunity cost of launching…

 50 EXP

… 5 SAT?

… 1 SAT?

 10 EXP

PPF Endeavor

Scientific

rise

Experiments

slope = 

(# per yr)

run

−100

= 

A

100

10

| slope | = 10

opp cost of SAT launches

= −10

B

Satellite

|Slope| of PPF

Launches

10

(# per year)

= opp cost of the good on the horizontal axis.

NASA’s Production Possibilities, 2002

Max # of

Flights

SAT

EXP

Shuttle

(# per yr)

(# per flight)

(# per flight)

Endeavour

2 5 50

Discovery

2 4 20

Atlantis

2 4 20

Columbia

2 4 20

Opportunity Costs Faced by NASA

NASA

PPF2002

Max # of

Shuttle

Flights

SAT

EXP

Endeavour

2 5 50

Older Shuttles

2 4 20

Opportunity cost

of SAT

of EXP

Endeavour

10 EXP

1/10 SAT

Older Shuttles

5 EXP

1/5 SAT

NASA’s PPF in 2002

Scientific Experiments (# per year)

 shuttles are doing EXP.

If NASA starts to launch SATs which Shuttle(s) should it use.

opp cost (SAT)

A

220

Endeavour (E)

10 EXP

Older Shuttles (OS)

5 EXP

B

If OS  SAT & E EXP, how many SAT and EXP are produced?

100 --

C

EXP = 100 SAT = 24

|

24

34

Satellite Launches (# per year)

NASA

PPF2002

Endeavour is…

Max # of

Better at SAT

Shuttle

Flights

SAT

EXP

Much better at EXP

Endeavour

2 5 50

Older Shuttles

2 4 20

Endeavour has an absolute advantage at producing both SAT and EXP because it produces more of both with the same inputs.

Endeavour has an comparative advantage at producing EXP because its opp cost of producing EXP is lower than that of the older shuttles.

NASA’s PPF in 2002

Scientific Experiments (# per year)

rise

| slope AB | = 

run

Opp cost of launching SAT via older shuttles

120

= 

A

24

220

= 5

100

B

| slope BC | =  = 10

100 --

10

Opp cost of launching SAT via Endeavour

C

|

24

34

Satellite Launches (# per year)

Intelsat VISatellite

Endeavour launched the Intelsat VI Satellite on its maiden flight.

Where would NASA have produced if it assigned ESAT and OS  EXP?

NASA’s PPF in 2002

Scientific Experiments (# per year)

NASA

PPF2002

Max # of

Shuttle

Flights

SAT

EXP

A

220

Endeavour

2 5 50

(3) Older Shuttles

2 4 20

I

120 --

B

Suppose NASA assigned ESAT and  OS  EXP?

100 --

Inefficient

C

|

24

34

10

Satellite Launches (# per year)

Principle of Opp Cost (or Low Hanging Fruit).

Endeavour:

opp cost = 10 EXP

When Q first use resources with lowest opp cost,

Endeavor should

never launch

SAT unless

and only use those with  opp cost as needed

all of the

OS are

launching

SAT

Discovery

Atlantis

opp cost = 5 EXP

opp cost = 5 EXP

Choose a shuttle to launch Satellites

Hence, it may have been inefficient to have Endeavor launch SAT on its maiden flight.

Is NASA Obeying the Principle of Opp Cost?

SOURCE: Wikipedia, “List of Space Shuttle Missions”

• Older Shuttles are more likely to launch satellites

• Endeavour stays up in space longer, probably because it is more likely to be doing experiments.

“The Columbia is Lost”

FEBRUARY 1, 2003

NASA’s PPF in 2003

Scientific Experiments (# per year)

NASA

PPF2003

After Columbia Crashed

Max # of

Shuttle

Flights

SAT

EXP

A

220

Endeavour

2 5 50

2

Older Shuttles

2 4 20

A’

180 --

B

100 --

B’

C

24

C’

34

16

26

Satellite Launches (# per year)

19th Century whaling is an analogous situation:

Machinists & Craftsmen

Carriages & Automobiles

Columbus Buggy Company

China’s Long March Rocket

China’s Production Possibilities

Scientific Experiments (# per year)

Slope = − 2

The cost of launching a SAT is 2 experiments in China. Suppose the US says, “We will pay you 3 for a SAT launch.” … its good for China.

A

Slope = − 5

180

100

B

China’s PPF

US’s PPF

C

16 26 90

Satellite Launches (# per year)

Scientific Experiments (# per year)

If the US specializes in producing experiments and purchases SAT from China at the price of 3 EXP per SAT…

A

180

100

B

China’s PPF

US’s PPF

US’s CPF

C

16 26 90

Satellite Launches (# per year)

Scientific Experiments (# per year)

If the US specializes in producing experiments and purchases SAT from China at the price of 3 EXP per SAT…

A

180

120

100

Gains from Trade: US can consume more EXP & more SAT with trade (i.e., E has more of both goods than B)

“exports”

E

“imports”

B

China’s PPF

US’s PPF

US’s CPF

C

16 20 26 90

Satellite Launches (# per year)

Scientific Experiments (# per year)

A

180

120

100

E

B

China’s PPF

US’s PPF

US’s CPF

C

16 20 26 90

Satellite Launches (# per year)