Comparative_Advantage__Lesson_7_ - Technology and...

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1 Lesson 7 1 What are the characteristics of an economy that generate the kind of Production Possibilities Frontiers in previous lessons? Continue to assume only two goods ( X = bread, Y = cheese) Assume that labor ( L ) is the only input (factor of production). Technology and Comparative Advantage Lesson 7 2 In this Ricardian economy, technology is simple. How many units of labor are necessary to produce a unit of bread? How many are necessary to produce a unit of cheese? Suppose labor is measured in hours, and that by working one hour a worker can produce either 5 loaves of bread or 1 pound of cheese. Technology is a complete listing of all possible ways that a firm can use available inputs to produce outputs. Lesson 7 3 This technology is characterized by constant returns to scale: increase (or decrease) all inputs (in this case, labor is the only input) by the some percentage and output increases (or decreases) by the same percentage.
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This note was uploaded on 09/14/2009 for the course ECON 340 taught by Professor Leidholm during the Summer '08 term at Michigan State University.

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Comparative_Advantage__Lesson_7_ - Technology and...

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