hw1a.s09 - ENNEC 100 Spring 2009 Homework 1 Due in class...

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ENNEC 100 Spring 2009 Homework 1 Due in class February 5. Please show all your work. Abbreviated Answers 1) (30 points) Barack Obama and Bill Clinton are stuck together on a desert island. There are two goods, turtles (T) and bananas (B). Barack has production function 2T+B=100, while Bill has production function T+4B=300. If they could not trade, Barack would choose to product 35T, while Bill would produce 40B. Now Barack and Bill meet. Explain a production/trade combination that would make both better off. Answer: Barack: T= 35, B= 30 OppCosts T B Barack 2 .5 Bill .25 4 Bill: T=140, B= 40 Total is T= 175, B= 70 Given the opportunity costs listed in the above table, Bill should produce all turtles and Barack should produce all bananas (specialization). Bill would have T=300, and Barack would have B= 100. There are multiple combinations possible, here is one: To make both better off for both bananas and turtles, Bill can trade 100T for 50B. This leaves Bill with 200T and 50B and Barack with 50B and 100T. So both the grand total
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hw1a.s09 - ENNEC 100 Spring 2009 Homework 1 Due in class...

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