11quiz1Lake - (Lake Name Elements of Microeconomics Quiz 1...

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(Lake) Name: Elements of Microeconomics: Quiz 1 Question 1 (each part 5 points) Suppose that the world consists of two countries–the USA and Ethiopia– who each produces only cars and cotton. Assume that the maximum units of cars and cotton that can be produced by the USA is, respectively, 10 and 5 and by Ethiopia is, respectively, 5 and 10. Assume each country has a linear production possibilities curve (PPC) and that the unit price of each good is 1. a) Using only the PPC of the USA, show its revenue maximizing production choice. Similarly, using only the PPC of Ethiopia, show its revenue maximizing production combination. b) Now suppose you are the head of the United Nations and want to maximize the revenue of the world (which only consists of the USA and Ethiopia). Would you instruct each country to produce the amounts you described above? Show why you would or would not do this.
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c) So far it has been the case that the USA “is better” at producing cars and Ethiopia “is better” at producing cotton. Now assume the USA is better at producing both cars and cotton. In particular, the
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