4. An economy consists of two people: John and Mary. Each of them has 2,000 hour
ID: 1135853 • Letter: 4
Question
4. An economy consists of two people: John and Mary. Each of them has 2,000 hours available for work per year. The economy can only produce skateboards and computers. John needs 5 hours to make a skateboard and 400 hours to make a computer. Mary needs 20 hours to make a skateboard and 50 hours to make a computer. (a) What is the maximum number of computers that the economy can pro- duce for one year? (b) What is the maximum number of skateboards that the economy can produce for one year? (c) How many computers and how many skateboards would be produced for one year if John only produces skateboards and Mary only produces computers? Is that efficient? Why?Explanation / Answer
4. a) The number of computers that John can produce in a year = 2,000/400 = 5
The number of computers that Mary can produce in a year = 2,000/50 = 40
Therefore, the maximum number of computers that the economy can produce for a year is 5+40 = 45
b) The number of skateboards that John can produce in a year = 2,000/5 = 400
The number of skateboards that Mary can produce in a year = 2,000/20 = 100
Therefore, the maximum number of skateboards that the economy can produce for a year is 400+100 = 500
c) 400 skateboards and 40 computers would be produced in a year if John only produces skateboards and Mary produces computers.
Yes, this is efficient because John holds competitive advantage in producing skateboards while Mary holds competitive advantage in producing computers.
If John was to produce computers and Mary was to produce skateboards, the economy would only produce 5 computers and 100 skateboards which is far less than the other scenario where John is producing skateboards and Mary is producing computers.
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