Question

Suppose a country uses Land to produce either wheat or corn. Each unit of Land produces either 3 Corn or 4 Wheat. The country has 1200 units of land.

a) What is the opportunity cost of corn?

b) If the country produces 2400 Wheat, how much Corn can they produce?

c) If they increase Corn production by 300 how much will they reduce Wheat production?

d) Is the combination 1500 units of Corn and 3200 units of Wheat Efficient, Inefficient or Unobtainable? Explain why.

e) Would your answer to d change if the country added an additional 100 units of land for production? Explain how?

Answer 1

A) Using all of it's 1200 units of land, the country can produce either (3*1200) = 3600 units of corn or, (4*1200) = 4800 units of wheat.

Therefore, opportunity cost of 1 unit of corn is (4800/3600) = 1.33 units of wheat.

B) If the country produces 2400 wheat, it will be using (2400/4) = 600 units of land. Therefore, using the remaining (1200 - 600) = 600 units of land, it can produce (600*3) = 1800 corn.

C) If they increase corn production by 300, it will be using (300/3) = 100 units more land. Using this 100 units of land, it could produce (100*4) = 400 wheat.

Therefore, to produce 300 more corn, they have to reduce wheat production by 400 units.

D) 1500 units of corn can be produced using (1500 /3) = 500 units of land.

3200 units of wheat can be produced using (3200/4) = 800 units of land.

It means a total of (500 + 800) = 1300 units of land is needed to produce the given production bundle. But the country has 1200 units of land. Therefore, the combination is unobtainable.

E) If the country adds 100 units of land, then it will have a total of 1300 units of land. Therefore, the combination of 1500 units of land and 3200 units of wheat will be efficient as they need exactly 1300 units of land to produce this production combination.