Consider an economy with just one technique available for the production of each good. Good Food Labor per unit output 1 Land per unit output 2 Cloth 1 a. Suppose land is unlimited but labor equals 100. Write and sketch the production possibility frontier. b. Suppose labor is unlimited but land equals 150. Write and sketch the production possibility frontier. c. Suppose labor equals 100 and land equals 150. Write and sketch the production possibility frontier. Hint: What are the intercepts of the production possibility frontier? When is land fully employed? Labor? Both d. Explain why the production possibility frontier of part (c) is concave. e. Sketch the relative price of food as a function of its out put in part (c). f. If consumers insist on trading 4 units of food for 5 units of cloth, what is the relative price of food? Why? g. Explain why production is exactly the same at a price ratio of pr/pc = 1.1 as at pr/pc = 1.9. h. Suppose that capital is also required for producing food and clothing and that capital requirements per unit of food and per unit of clothing are 0.8 and 0.9, respectively. There are 100 units of capital available. What is the production possibility curve in this case? Answer part (e) for this case
Consider an economy with just one technique available for the production of each good. Good Food Labor per unit output 1 Land per unit output 2 Cloth 1 a. Suppose land is unlimited but labor equals 100. Write and sketch the production possibility frontier. b. Suppose labor is unlimited but land equals 150. Write and sketch the production possibility frontier. c. Suppose labor equals 100 and land equals 150. Write and sketch the production possibility frontier. Hint: What are the intercepts of the production possibility frontier? When is land fully employed? Labor? Both d. Explain why the production possibility frontier of part (c) is concave. e. Sketch the relative price of food as a function of its out put in part (c). f. If consumers insist on trading 4 units of food for 5 units of cloth, what is the relative price of food? Why? g. Explain why production is exactly the same at a price ratio of pr/pc = 1.1 as at pr/pc = 1.9. h. Suppose that capital is also required for producing food and clothing and that capital requirements per unit of food and per unit of clothing are 0.8 and 0.9, respectively. There are 100 units of capital available. What is the production possibility curve in this case? Answer part (e) for this case
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Consider an economy with just one technique available for the production of each good.
Good
Labor per unit output
Land per unit output
Food
1
2
Cloth
a. Suppose land is unlimited but labor equals 100. Write and sketch the production possibility frontier.
b. Suppose labor is unlimited but land equals 150. Write and sketch the production possibility frontier.
c. Suppose labor equals 100 and land equals 150. Write and sketch the production possibility frontier.
Hint: What are the intercepts of the production possibility frontier? When is land fully employed? Labor?
Both
d. Explain why the production possibility frontier of part (c) is concave.
e. Sketch the relative price of food as a function of its out put in part (c).
f. If consumers insist on trading 4 units of food for 5 units of cloth, what is the relative price of food?
Why?
g. Explain why production is exactly the same at a price ratio of pr/pc = 1.1 as at pr/pc = 1.9.
h. Suppose that capital is also required for producing food and clothing and that capital requirements
per unit of food and per unit of clothing are 0.8 and 0.9, respectively. There are 100 units of capital
available. What is the production possibility curve in this case? Answer part (e) for this case
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Step 1: State the information given
VIEWStep 2: a. Write and sketch the PPF when land is unlimited but labor is 100
VIEWStep 3: b. Write and sketch PPF curve when land is limited to 150.
VIEWStep 4: c. Write the PPF curve when labor equals 100 and land equals 150
VIEWStep 5: d. Explain why PPF curve is concave
VIEWStep 6: e. Sketch relative price of food as a function of output
VIEWStep 7: f. State the relative price of food.
VIEWStep 8: g. Explain why the production is same for the price ratio
VIEWStep 9: h. Draw the new PPF curve
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