James has 16 hours of labour to allocate between producing goods X and Y which means...

James has 16 hours of labour to allocate between producing goods X and Y which means that LX + LY = 16. He also has 4 units of capital to allocate KX + KY = 4. Production functions are X = 2KX1/4LX1/4 and Y = KY1/4LY1/4. His tastes for the two activities are symmetric U = XY. a. Derive James’ Production Possibilities Frontier. Put Y on the vertical axis. Provide a labelled PPF graph showing the combination of Y and X that is consistent with his tastes. Making reference to your diagram, define “consistency” in this context. b. James should allocate _____________ units of labour and ____________ units of capital to the production of Good X.

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Rahul Sunny answered 1 year ago

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