In this problem we will drop the assumption that resources are cqually adaptable
ID: 1136839 • Letter: I
Question
In this problem we will drop the assumption that resources are cqually adaptable to the two different production options. The table below identifies six labor resources and how much they can produce in Canada (again, in some unspecified units). Labor Resource Pepper Production Potato Production Arberto Beryl Chris 15 12 Debby Florence Gordon 7 10 13 15 potatoes wil be produced? Question Ib: If all resources are assigned to pepper production how many units of potatoes will be produced? Question 2a: If Canada was applying all labor resources to potato production, and trade was halted with Mexico, which labor resource should be the first to switch to peppers? Question 2b: What is the opportunity cost of making that switch?Explanation / Answer
1) If all resources are assigned to potato production then each labor resource will produce only poptato and so we simply sum each resource's potato production. Thus quantity of potatoes produced=1+4+7+10+13+15=50 potatoes.
2) If all resources are assigned to pepper production then each labor resource will produce only pepper and so the amount of potato production will simply be 0.
3) The resource that should be switched first should be the one that gives maximum production of pepper for one unit loss of potato or in other words that labor resource should be transferred first that is least specialised in potato production. Clearly, for any one unit loss in potato production the maximum gain in pepper production is given by switching Arberto (for one unit loss of potato, 15 pepper units are gained). Thus the answer is Arberto.
4) Opportunity cost here is the amount of potato production forgone to produce one extra unit of pepper. So for producing one extra unit of pepper by switching Arberto, 1/15 units of potato production is lost so the opportunity cost=1/15 potato unit
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.