ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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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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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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