Consider the following Country with 100 inhabitants producing wheat and cloths. The Marginal Products of Labor...

Consider the following Country with 100 inhabitants producing wheat and cloths. The Marginal Products of Labor (MPL) in the country are as follows.

Wheat 6 Bushels per person per day

Cloths 2 Yards per person per day

a. Draw the Production possibility frontier (PPF) using following information.

i. Total wheat production if all are employed in wheat

ii. Total cloth production if all are employed in cloths

iii. Production of wheat and cloths if half of the population is in wheat and the other half in cloths.

b. Derive a relationship between ratio of MPLs and ratio of Prices of Wheat and Cloths.

c. What is the price of cloths?

d. To determine the production and consumption of wheat and cloths in the country what more information do you require?

e. Use a diagram to show production and consumption of wheat and cloths in the country.

Solutions

Expert Solution

a.The Production possibility frontier (PPF) is shown below. With 100 workers, total production of wheat is 6*100 = 600 bushels per day and total production of cloths is 2*100 = 200 yards of cloths, if all the 100 workers are allocated in one industry at a time.

i. Total wheat production if all are employed in wheat: 600 bushels

ii. Total cloth production if all are employed in cloths: 200 yards

iii. Production of wheat and cloths if half of the population is in wheat and the other half in cloths: 50*6 = 300 bushels of wheat and 2*50 = 100 yards of cloths.

b.The relationship between ratio of MPLs and ratio of Prices of Wheat and Cloths is given by:

Wage rate in wheat production = wage rate in cloth production

MPLW x PW = MPLC x PC

PC/PW = MPLW/MPLC

Hence PC/PW = 6/2 = 3.

c. The price of cloths is three times the price of wheat. This implies that 1 yard of cloth is priced at 3 bushels of wheat.

d. To determine the production and consumption of wheat and cloths in the country information related to the community indiiference curve, that relates marginal rate of substitution with the marginal rate of transformation, is required.

e. Assuming half of the population is working in each sector, the production and consumption of wheat and cloths in the country will be equal. This is shown below

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

1. Consider the following Country with 100 inhabitants producing wheat and cloths. The Marginal Products of...

1. Consider the following Country with 100 inhabitants producing wheat and cloths. The Marginal Products of Labor (MPL) in the country are as follows. Wheat 6 Bushels per person per day Cloths 2 Yards per person per day 1. Derive a relationship between ratio of MPLs and ratio of Prices of Wheat and Cloths 2.What is the price of cloths? 3.To determine the production and consumption of wheat and cloths in the country what more information do you require? 4....

Assume that in country A, the unit labor requirement for producing good X is 100 hours,...

Assume that in country A, the unit labor requirement for producing good X is 100 hours, and the unit labor requirement for good Y is 20 hours. Meanwhile in country B, the unit labor requirement for producing good X is 80 hours and the unit labor requirement for good Y is 40 hours. Draw a Production possibilities curve for both countries (2 graphs, one for each country), given the above data. Show and explain how international trade could leave both...

Consider the following table: Labor Output Marginal Product 0 0 ? 10 100 ? 20...

Consider the following table: Labor Output Marginal Product 0 0 ? 10 100 ? 20 180 ? 30 240 ? 40 280 ? Based on the table above, if labor increases from 20 to 30, then marginal product of the 30th worker is: 10 8 6 4 2 points QUESTION 2 Suppose the long run production function is given by: Q = 4*L +2K2. Marginal product of labor (MPL) = 4 and wage is $10. Marginal product of...

Consider the MPLs of the following countries. Country MPL of Wheat MPL of C

Consider the MPLs of the following countries. Country MPL of Wheat MPL of Cloths A (25 people) 6 2 B (100 People) 3 1 C (100 People) 1 1 a. Which country has the absolute advantage over the production of wheat? b. Which country has the absolute advantage over the production of cloths? c. Which country has the comparative advantage over the production of wheat? d. Which country has the comparative advantage over the production of cloth? e. If only...

Consider the following statements. (i.) A country is said to have an absolute advantage in producing...

Consider the following statements. (i.) A country is said to have an absolute advantage in producing a particular good if it can produce it at the lowest possible opportunity cost than is possible elsewhere. (ii.) A country has an absolute advantage in a particular good if it can produce the same amount of that good using fewer inputs than is possible elsewhere or if it can produce more of that good using the same amount of resources than is possible...

Assume the Ricardian model where the marginal product of labor in the home country is 3...

Assume the Ricardian model where the marginal product of labor in the home country is 3 in the cheese industry and 2 in the wine industry. The home country has 10 workers. The relative price of wine (Pw/Pc) is 2 after trade. After trade the home country consumes 12 units of wine. Use this information to calculate a. The relative price of wine before trade b.The slope of the production possibilities frontier, where wine is on the horizontal axis and...

A monopolistic firm is currently producing 3,500 units of output; price is $100, marginal revenue is...

A monopolistic firm is currently producing 3,500 units of output; price is $100, marginal revenue is $7, average total cost is $5.50, marginal cost is $4.50, and average variable cost is $3.75. The firm should a. raise price because the firm is losing money. b. keep the price the same because the firm is producing at minimum average variable cost. c. raise price because the last unit of output decreased profit by $5.50. d. lower price because the next unit...

Comparative Advantage Models Suppose two products are being produced in the US, auto and wheat. Labor...

Comparative Advantage Models Suppose two products are being produced in the US, auto and wheat. Labor is the mobile factor used in both productions. Capital and Land are two specific factors. 1) Draw the butterfly graph four all four markets (product market, productions, and labor market) and clearly label all four axes. 2) Explain why the PPF is curved in the Specific Factors model. 3) Will the PPF curve be a straight line for HO model?

2) Consider the following labor supply, demand, and marginal wage cost curves. ?=5+? ? = 40...

2) Consider the following labor supply, demand, and marginal wage cost curves. ?=5+? ? = 40 − 3? ??? = 5 + 2? a) Find the labor quantity which will be employed, and the wage which will be paid by a competitive firm. Show on a graph. b) Find the labor quantity which will be employed, and the wage which will be paid by a profit- maximizing monopsonist. Show on a graph.

Consider a country, Home, populated by a labor force of 90 workers. The country can produce...

Consider a country, Home, populated by a labor force of 90 workers. The country can produce two goods, Apples and Bananas. Labor is the only factor of production and it can freely move across sectors. It takes 1/2 unit of labor to produce one Apple; similarly, and it takes 1/2 unit of labor to produce a Banana. Notes: If the country does not produce any bananas , then , it can produce (90)/(1/2) = 90(2) = 180 apples. If the...

Subjects