Intermediate Microeconomics: A Modern Approach, Seventh Edition

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Econ 301 – F07 PROBLEM SET 1 - due in class on Tuesday September 11 Wissink 1. Argentina and Brazil both produce leather and coffee with labor. The labor input is measured in hours, coffee is measured in gallons and leather is measured in yards. The table below shows labor requirements to produce a unit of coffee and of leather in each country. (It is assumed that the labor requirements per unit of output in production remain the same irrespective of the quantity of the two goods produced.) Each country has 120 hours of labor available, which can be allocated between the two activities. Labor can not go from one country to the other but coffee and leather can. HOURS REQUIRED Argentina Brazil 1 gallon of coffee 10 hrs 4 hrs 1 yard of leather 15 hrs 20 hrs a. Graph the production possibilities frontier (PPF) for both Argentina and Brazil (separately) clearly labeling the axes. (Note: The labor requirements per unit of output remain constant irrespective of the quantity produced.) b. What is the opportunity cost of producing an extra gallon of coffee in Argentina? In Brazil? c. What is the opportunity cost of producing an extra yard of leather in Argentina? In Brazil? d. Suppose that both Argentina and Brazil are self sufficient i.e., they each rely on their own production for their consumption and do not trade with each other. Also assume that each nation
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