How much cloth and food will the economy produce

Reference no: EM13239735

Go back to the numerical example with no factor substitution that leads to the production possibility frontier in Figure 5-1.

a. What is the range for the relative price of cloth such that the economy produces both cloth and food? Which good is produced if the relative price is outside of this range?
For parts (b) through (f), assume that the price range is such that both goods are produced.

b. Write down the unit cost of producing one yard of cloth and one calorie of food as a function of the price of one machine-hour, r, and one work-hour, w. In a compet- itive market, those costs will be equal to the prices of cloth and food. Solve for the factor prices r and w.

c. What happens to those factor prices when the price of cloth rises? Who gains and who loses from this change in the price of cloth? Why? Do those changes conform to the changes described for the case with factor substitution?

d. Now assume that the economy's supply of machine-hours increases from 3,000 to 4,000. Derive the new production possibility frontier.

e. How much cloth and food will the economy produce after this increase in its capital supply?

f. Describe how the allocation of machine-hours and work-hours between the cloth and food sectors changes. Do those changes conform with the changes described for the case with factor substitution? the United States, where land is cheap, the ratio of land to labor used in cattle

Reference no: EM13239735

Questions Cloud

Explain what was the molar absorptivity of the dye : A solution of a dye in a 0.80 cm cuvette of concentration 1.25 x 10^-3 M had an absorbance of 0.115 at a particular wavelength. What was the molar absorptivity of the dye

Find the subgame perfect nash equilibrium using induction : There are 6 tokens on the table. Two players alternate removing some of the tokens. In each move any player can either remove exactly one or exactly two tokens. Whoever removes the last token is the winner

Calculate the oscillators maximum speed : A 420g oscillator has a speed of 128.5cm/s when its displacement is 3.30cm and 59.5cm/s when its displacement is 5.40cm .what is the oscillator's maximum speed

State the lewis dot structure of hxesh the formal charges : what is the lewis dot structure of HXeSH the formal charges on each atom should be = to 0

How much cloth and food will the economy produce : Write down the unit cost of producing one yard of cloth and one calorie of food as a function of the price of one machine-hour, r, and one work-hour, w. In a compet- itive market, those costs will be equal to the prices of cloth and food.

Determine the total outward force on the window : A viewing window on the side of a large tank at a public aquarium measures 32 in. by 37 in. The average gauge pressure from the water is 6 psi

Explain the oxidation of nitrogen monoxide from car exhaust : In the lower troposphere, ozone is one of the components of photochemical smog. It is generated in air when nitrogen dioxide, formed by the oxidation of nitrogen monoxide from car exhaust, reacts by the following mechanism.

What is the value of gnp using the value-added approach : Assume the economic activity of the economy in a given year consists of the following: Steel producers fabricate Php. 4 billion of farm machinery, which is sold to farmers; Farmers produce 40 million sacks of rice, which is sold for Php. 25 billion ..

What would be the quantity of loanable funds supplied : Three students have each saved $1000. Each has an investment opportunity in which he or she can invest up to $2000. The rates of return on the students' investment projects are: Harry: 5% Ron: 8% Hermione: 20%.

User Account

All Pages