Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 1

Consider an economy with just one technique available for the production of each good, food and cloth: a. Supposing land is unlimited but labor equals 100, write and sketch the production possibility frontier.
b. Supposing labor is unlimited but land equals 150, write and sketch the production possibility frontier.
c. Supposing labor equals 100 and land equals 150, write and sketch the production possibility frontier. (Hint: What are the intercepts of the production possibility frontier? When is land fully employed? Labor? Both?)d. Explain why the production possibility frontier of part c is concave.
e. Sketch the relative price of food as a function of its output in part c.
f. If consumers insist on trading four units of food for five units of cloth, what is the relative price of food? Why?
g. Explain why production is exactly the same at a price ratio of PF/PC = 1.1 as at PF/PC = 1.9.
h. Suppose that capital is also required for producing food and cloth and that capital requirements per unit of food are 0.8 and per unit of cloth 0.9. There are 100 units of capital available. What is the production possibility curve in this case? Answer part e for this case.