HW1 Answers_302 - Econ 302- First Problem Set Solution...

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Econ 302- First Problem Set Solution Spring 2011-Ali Toossi Due: Wednesday, February 2 1- a) 120 = + B HD L L b) HD HD L y 5 . 0 = , B B L y 5 . 0 = c) Solve the three equations: 120 = + B HD L L & HD HD L y 5 . 0 = & B B L y 5 . 0 = 60 = + B HD y y d) 0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 70 PPF e) You have to give up one hot dog in order to get one more bun. Thus the opportunity cost is one. The opportunity cost is the absolute value of sloe of PPF. Taking derivative with respect to B y we get 0 1 = + B HD dy dy 1 - = B HD dy dy = slope of PPF opportunity cost = 1 = B HD dy dy f) You have to give up one bun in order to get one more hot dog. Thus the opportunity cost is one. The opportunity cost is the absolute value of sloe of PPF. Taking derivative with respect to HD y we get 0 1 = + HD B dy dy 1 - = HD B dy dy = slope of PPF opportunity cost = 1 = HD B dy dy g) Consumer preference indicates they only consume combinations of hot dog and bun where B HD y y = . In the following graph the 45 degree line shows the combination that consumers will consume. Therefore they will choose the point ) 30 , 30 ( = = B HD y y on the PPF. 1
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Since for producing every hot dog and ever bun we need two people therefore 60 million are employed in hot dog industry and 60 million in bun industry. h) HD HD L y = i) We would like to know the impact of this technology improvement on employment. a. i. Since consumers consume 30 million hot dogs and now we only need one person to produce one hot dog, the employment in hot dog industry fall from 60 million to 30 million. ii. Since consumers still consume 30 million buns and we need two people to produce one bun, the employment in bun industry will stay at 60 million. iii.
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HW1 Answers_302 - Econ 302- First Problem Set Solution...

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