Consider an economy with just one technique available for the production of each good, food and cloth:

a. Supposing land is unlimited but labor equals 100, write and sketch the production possibility frontier.
b. Supposing labor is unlimited but land equals 150, write and sketch the production possibility frontier.
c. Supposing labor equals 100 and land equals 150, write and sketch the production possibility frontier.
d. Explain why the production possibility frontier of part c is concave.
e. Sketch the relative price of food as a function of its output in part c.
f. If consumers insist on trading four units of food for five units of cloth, what is the relative price of food? Why?
g. Explain why production is the same at a price ratio of PF/PC = 1.1 as at PF/PC 1.9.
h. Suppose that capital is also required for producing food and cloth and that capital requirements per unit of food are 0.8 and per unit of cloth 0.9. There are 100 units of capital available. What is the production possibility curve in this case? Answer part e for thiscase.

Transcribed Image Text:

GOOD FOOD CLOTH Labor per unit output Land per unit output