Question

suppose 2 goods (computers and shirts), 1 input (labor/workers)

A. for mexico, how many workers to make 1 computer?

B. How many workers to make 1 shirt

C. assume mexico has 24 workers, what is the opporunity cost of producing 1 computer?

D. what is the opportunity cost of producing 1 shirt?

Graph Mexico's PPF ( remember they have 24 workers)

Answer 1

Ans.

a) To produce 1 computer (C), Lc units of labour are required

b) To produce 1 shirt (S), Ls unit of labour is required.

c) With 24 worker,

Maximum number of computers produced by Mexico = 24/Lc

Maximum number of shirts produced by Mexico = 24/Ls

So, if Mexico produces 24/Lc amount of computer, then it has to forgo production of 24/Ls of shirts. Thus, opportunity cost of producing 24/Lc computers = 24/Ls

=> Opportunity cost of producing 1 computer = (24/Ls)/(24/Lc) = Lc/Ls

d) Similarly opportunity cost of producing 1 shirt = (24/Lc)/(24/Ls) = Ls/Lc

e) The equation for production possibility frontier,

C*Lc + S*Ls = 24

And slope of PPF is the opportunity cost opportunity cost of producing 1 computer which is Lc/Ls, so, it does not change with choice of good produced. Hence, the PPF is the downward sloping linear curve.

*Values were not given, so, I have assumed the variables. Putting the values of these variables will give you the answer.

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