Question

In: Economics

1.1 With an hour, Paul receives a wage of $40 or he could produce home goods...

1.1 With an hour, Paul receives a wage of $40 or he could produce home goods worth $20. With an hour, Liz receives a wage of $20 or she could produce home goods worth $40. They have a total of 10 hours available.

f. If they produce $200 worth of home goods together, and they are an efficient couple, how much do they produce in total in the market?

Solutions

Expert Solution

Total production of home goods in the market is worth of $200. Liz should be producing home goods as she produces home goods worth the more amount than that of Paul. Liz produces home goods worth of $40. To produce home goods Liz will be taking 1 hour as it's stated with an hour Liz could either earn $20 a wage or can produce home goods worth of $40. But it is stated both Paul and Liz will be working together to produce the home goods. Then Paul should be investing the least time to produce home goods as he could produce only $20 worth of home goods. Then Paul should work for 1 hour to produce home good. So, out of $200 Paul is working for $20 worth of home goods. So, remaining worth of home goods is $200-$20 = $180. To produce $180 worth of goods, which Liz will be producung, Liz takes $40 worth of home goods. So, number of hours Liz will be working for, = $180/$40 =4.5 hours. In total, they will be investing a total of 1hour+4.5 hours of work. 1 hour of work is invested by Paul and 4.5 hours of work is invested by Liz. So, here they are producing a total of $200 worth of home goods for which they have invested 1hour + 4.5 hours = 5.5 hours of work. Remaining time = 10hours - 5.5hours = 4.5 hours. Paul should be earning the wage amount as he is earning in wages of $40 an hour. So, Paul will be earning for the remaining 4.5 hours for wages. Do total amount earned for wages by Paul will be, $40*4.5 = $180. In total they will produce worth of $200+$180 = $380 worth of produce in the market of which $200 is the worth of home goods and $180 worth of wages.


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