Question

Suppose Malaysia's production possibilities include a maximum of 120 units of rice or 300 units of lumber, and Canada's production possibilities include a maximum of 240 units of rice or 180 units of lumber. Then suppose each country initially allocates 50% of its labor to producing each product. a) Total production by the two countries equals tons of rice and ft3 of lumber. b) Now suppose that Malaysia increases the labor it allocates to lumber by 10%. Its lumber production rises by and its rice production falls by . c) If Canada reallocates its labor to increase its rice production by exactly the amount that Malaysia's rice production fell, by how much must its lumber production fall? ft3 d) State the combined effects on total production of the reallocations in part b and c. Total production of rice changes by tons. (include a negative sign, if needed) Total production of lumber changes by ft3. (include a negative sign, if needed)

Answer 1

a) Malaysia:
Production of rice = 50% of 120 = 60 units

Production of Lumber = 50% of 300 = 150 units

Canada:

Production of rice = 50% of 240 = 120 units

Production of Lumber = 50% of 180 = 90 units

Total Production of rice = 60 + 120 = 180 units

Total production of Lumber = 150 + 90 = 240 units

b) Malaysia:
Allocation of Labour to Lumber increased by = 10%

So new Allocation of labor to Lumber = 50% + 10% of 50% = 55%

Production of Lumber = 55% of 300 = 165 units

Production of Rice = 45% of 120 = 54 units

So lumber production rises by = 165 - 150 = 15 units

Rice Production Falls by = 60 - 54 = 6units

c) Increase in production of rice by Canada = 6 units

240 units is produced by 100% labour

6 units will be produced by = 100/240 * 6% = 2.5%

So new labour allocation to rice = 50 + 2.5% = 52.5%

So production of rice = 52.5% of 240 = 126 units

Production of Lumber = 47.5% of 180 = 85.5 units

Fall in lumber production = 90 - 85.5 = 4.5 units

d) Total Production of rice = 54 +126 units = 180 units

Total production of Lumber = 165 + 85.5 units = 250.5 units

Increase in production of rice = 180 - 180 = 0 units

Increase in production of lumber = 250.5 - 240 units = 10.5 units

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