a)
To ascertain:The
a)
Answer to Problem 10.6P
The production possibility curve for region A
The production possibility curve for region B
Explanation of Solution
To calculate the production possibility curves for region A, consider the following production
function for region A:
Here, Ix, is the labor allocated in the production of good x and I, is the labor allocated in the
production of good y
The total amount of labor available to region A is 100, that is,
From the production function, compute the value of Ixand Iy, as follows:
Now, substitute the value of Ix, and Iy, in the equation of total available labor and compute the
production function as follows:
Hence, the production for region
The PPF curve for region A is shown below:
In this graph the vertical axis shows production of good y and horizontal axis shows production of good x.
To calculate the production possibility curves for region B, consider the following production
function for region B:
Here, Ixis the labor allocated in the production of good x and Iyis the labor allocated in the
production of good y .
The total amount of labor available to region A is 100, that is,
From the production function, compute the value of Ix and Iyas follows:
Now, substitute the value of Ix and Iy and in the equation of total available labor and compute theproduction function as follows:
Hence, the production of region B is
The PPF curve for region B is shown below:
In the above graph, the vertical axis shows the production of good y and the horizontal axisshows the production of good x.
Introduction: Production possibilities of frontier is referring to specify the highest production combination of two products or services by the fixed amount of investment.
b)
To ascertain:conditions behind work allotted in region A and B.
b)
Answer to Problem 10.6P
The condition must hold for production allocation in country R between regions is
Explanation of Solution
To allocate the production efficiently in a region, the rate of production transformation (RPT) mustbe equal to the marginal rate of substitution (MRS).
Mathematically, the following condition musthold:
To allocate the production of two goods efficiently in the region A, the following condition musthold:
Hence, the rate of production transformation (RPT) in region A is
To allocate the production of two goods efficiently in region B, the following condition must hold:
Hence, the rate of production transformation (RPT) in region B is
To achieve the production
Hence, the condition must hold for production allocation in country R between regions is
Introduction: The marginal rate of production transformation is can be described as number of quantity of product that inevitable in order to attain a unit of another product.
c)
To ascertain:production possibility curve for a country.
c)
Answer to Problem 10.6P
The PPF for a country R is shown below:
Explanation of Solution
To determine the combined PPF for a country R,
first, calculate the combine production function asfollows:
Region A
Region B
Equate the Ix , and Iy , as follows:
Combine production function is shown below:
Thus, the combined PPF is
The total output of x is 12. Substitute the value of x in the above combined PPF and calculate the
output of y as follows:
Hence, the total output of y produced in a country is 9
The PPF for a country is shown below:
Introduction: Production possibilities of frontier is referring to specify the highest production combination of two products or services by the fixed amount of investment.
d)
To ascertain:production possibilities frontier for whole country.
d)
Answer to Problem 10.6P
If the labor is mobile within the country the production can be increased by allocating the resources in the favor of the more productive region.
Explanation of Solution
The PPF for the whole country can be developed for the whole country in the same way the PPF has been calculated for country R with two regions
If the labor is mobile within the country the production can be increased by allocating the resources in the favor of the more productive region.
Introduction: Production possibilities of frontier is referring to specify the highest production combination of two products or services by the fixed amount of investment.
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Chapter 10 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
- Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions: North Economy: Y = A L0.3K0.7 South Economy: Y = A L0.7K0.3 In which economy is the marginal product of labor larger? Explain.arrow_forwardSuppose there are two countries, Home and Foreign, that produce two goods, fish (F) and edamame (E), using only labor. In the Home country 6 units of labor are required to produce each unit of fish and the same for each unit of edamame. In the Foreign country, 2 units of labor is required to produce each fish and 3 units of labor are required for each unit of edamame. Each country has a labor force of 30 units available for production. Suppose further that consumers in both countries have identical Leontief preferences, utility function U(CF, CE) = min(CF, CE), meaning that they want to consume the two goods in a fixed proportion of one-to-one, i.e. CF = CE (there is no substitution between the goods). Suppose now that the labor force of the Home country is 6 times as big (i.e. 180 units, instead of 30). How does this increase in labor force at Home change the pattern of trade? Will the gains from trade for the Home country be higher or lower now? What happens to the welfare of the…arrow_forwardConsider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2 (with labor and land). Initially, both countries have the same supply of labor (250 units each), capital, and land. The capital stock in Home then grows. This change shifts out both the production curve for good 1 as a function of labor employed and the associated marginal product of labor curve. Nothing happens to the production and marginal product curves for good 2. a. Show how the increase in the supply of capital for Home affects its production possibility frontier. Using the three-point curved line drawing tool, draw a new PPF for Home that reflects the increase in the supply of capital. Properly label the curve. Carefully follow the instructions above and only draw the required object. Output of good 2 250 Home 250 PPF0 Output of good 1 Qarrow_forward
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