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Unformatted text preview: Technology Ac = L/lbs 1/a = productivity of 1 worker aw = L/gallons Opp Cost choose cheese (1 lbs). Unit labor requirement ac. If I produce cheese, I cannot produce wine with ac. How much wine can 1 labor produce? 1/aw ac * 1/aw = ac/aw used this much labor * 1 labor could produce in wine = ac/aw ac/aw is the opp cost of cheese in terms of wine. Constraint- labor is fixed. (demand in both markets) Lc + Lw = L (supply) workers * quantity = labor units # of labor used to produce 1 unit of cheese * q of cheese = Lc ac * Qc = Lc PPF = acQc + awQw = L since ac and aw are constant, the PPF is a line. Slope is opp cost of cheese in terms of wine ac/aw Anything on ppf can be produced, inside it is inefficient. Relative prices- need prices to calculate profits, but look need to look at prices of both goods. Relative price of coke is the amount of chocolates that can be exchanged for one unit of coke, which if coke is $1 and chocolates $2, is ....
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- Spring '08