# ps1 - Economics 102 Introductory Macroeconomics Spring 2006...

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Economics 102 Introductory Macroeconomics - Spring 2006, Professor J. Wissink Problem Set 1 – DUE at the start of class on Monday Feb 6, 2006 Boxes will be removed ten minutes after the start of class. Remember: We will NOT accept problem sets late. Period. Thanks for minding this policy and not asking if you can hand it in late. 1. Consider the production function information below for Malmsbury, England which can make only shortbread and ale with their labor supply of 10 hours. Labor hrs shortbread lbs Labor hrs ale gals 0 0 0 0 1 10 1 20 2 22 2 35 3 32 3 47 4 40 4 57 5 46 5 65 6 50 6 71 7 52 7 75 8 53 8 77 9 53.5 9 78 10 53.6 10 78.5 a) Graph the production function for shortbread and the production function for ale. b) Does the law of diminishing returns apply in each production function? If so, where does it "set in”? c) Graph the PPF between shortbread and ale for Malmsbury. (PUT ale on the horizontal and shortbread on the vertical and assume you can continuously connect all the points.) d) What is the total opportunity cost of 75 gallons of ale? e) What is the marginal opportunity cost of the 75th gallon of ale? f) How might an increase in the technology for making ale actually allow Malmsbury to make more ale AND shortbread? (Just use your PPF to show this. No need for numbers.) 2. Consider an economy producing only bread and clothing. Bread is produced with land and labor as inputs, while clothing is produced with capital and labor as inputs.

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