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Econ 302 First Problem Set Solution
Spring 2011Ali 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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View Full DocumentSince 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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 Spring '09
 AVRINRAD
 Opportunity Cost

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