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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?.

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  1. Figure 1. The Frequency Distribution of Scores on HW1 Score

  2. NASA’s Production Possibility Frontier (PPF)

  3. Shuttles can carry…  Satellites (SAT) & Experiments (EXP)  Lockers Interior Payload

  4. 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.

  5. 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)

  6. 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

  7. 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.

  8. 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

  9. 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

  10. 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)

  11. Absolute and Comparative Advantages 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.

  12. 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)

  13. 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?

  14. 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)

  15. 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 already 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.

  16. 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.

  17. “The Columbia is Lost” FEBRUARY 1, 2003

  18. 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)

  19. 19th Century whaling is an analogous situation: Machinists & Craftsmen Carriages & Automobiles Columbus Buggy Company

  20. China’s Long March Rocket China’s Production Possibilities

  21. 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)

  22. 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)

  23. 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)

  24. 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)

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