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Unformatted text preview: Homework 2 ECON 010, Fall 2011 Question 1 Larry and Harry are stranded together on a desert island. The raw materials on the island are suitable only for making beer and pizza, but their quantities are unlimited. What is scarce is labor. Harry and Larry each spend 10 hours a day making beer or pizza. The following table specifies how much beer and pizza Harry and Larry can produce per hour. Beer Pizza Harry 1 bottle per hour 0.2 pizza per hour Larry 0.5 bottle per hour 1.5 pizza per hour a. Draw the daily production possibilities frontier (PPF) for Harry and for Larry (i.e. two separate PPFs). b. What is the opportunity cost of a beer (in terms of Pizza) for Harry? For Larry? c. Now suppose their preferences are as follows: Harry wants 2 beers and as much pizza as he can eat each day; Larry wants 2 pizzas and as much beer as he can drink each day. If each man is self-reliant, how much beer and pizza will Harry and Larry eat and drink? Show the consumption points on their respective PPFs.respective PPFs....
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This note was uploaded on 04/04/2012 for the course ECON 010 taught by Professor Stein during the Fall '07 term at UPenn.
- Fall '07