aps1 - Economics 102 Introductory Macroeconomics - Spring...

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Economics 102 Introductory Macroeconomics - Spring 2006, Professor J. Wissink Problem Set 1 – ANSWERS 1. Consider the production function information below for Malmsbury, England which can make only shortbread and ale with their labor supply of 10 hours. a) Graph the production function for shortbread and the production function for ale. b) Yes, it does. The law of diminishing returns sets in after the 2nd hour of labor in the shortbread sector because the additional unit of labor adds less to the total output compared to the previous unit. It sets in right from the start in the ale sector. c) d) The Total Opportunity Cost of 75 gallons of ale is 53.6 - 32 = 21.6 lbs of shortbread e) The Marginal Opportunity Cost of the 75th gallon of ale is the (change in SB)/(change in ale) = (40-32)/(75-71) = 8/4 = 2 lbs of shortbread. Note: since this is an approximation, there are other ok approximations, too. This is the way most people would do it. But it would also be OK if you did the following: 1 Shortbread 0 20 40 60 0 1 2 3 4 5 6 7 8 9 10 Labor (hrs) Shortbread (lbs) Shortbread Ale 0 20 40 60 80 0 1 2 3 4 5 6 7 8 9 1011 Labor (hrs) Ale (gallons) Ale 0 10 20 30 40 50 60 70 0 20 40 60 80 100 Ale (Gals) Shortbread(lbs) PPF New PPF A C B
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PPFtech PPFimm PPFo units of bread units of clothing
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This note was uploaded on 03/10/2009 for the course ECON 102 taught by Professor Kyle during the Spring '08 term at Cornell University (Engineering School).

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aps1 - Economics 102 Introductory Macroeconomics - Spring...

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