In the two-sector (manufacturing and agriculture) specific-factors model, the slope of the production possibilities curve equals:
A) the ratio of marginal products of capital in the two sectors.
B) the ratio of marginal products of labor utilized in the two sectors.
C) the ratio of outputs produced in the two sectors.
D) the ratio of land and capital utilized in the two sectors.

Question

Quizplus · Accepted Answer

The slope of the production possibilities curve represents the opportunity cost of producing one good in terms of the other. In the two-sector specific-factors model, the opportunity cost of producing manufacturing goods in terms of agriculture goods equals the ratio of marginal products of labor utilized in the two sectors. This is because the model assumes that labor is the mobile factor of production between the two sectors, and the marginal product of labor is the additional output that can be produced by using one additional unit of labor. Therefore, the correct answer is B, the ratio of marginal products of labor utilized in the two sectors.

In the Two-Sector (Manufacturing and Agriculture) Specific-Factors Model, the Slope