Microeconomic Theory 11th Edition by Walter Nicholson,Christopher Snyder

Exercise 3

Consider an economy with just one technique available for the production of each good.

a. Suppose land is unlimited but labor equals 100. Write and sketch the production possibility frontier.
b. Suppose labor is unlimited but land equals 150. Write and sketch the production possibility frontier.
c. Suppose 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 4 units of food for 5 units of cloth, what is the relative price of food? Why?
g. Explain why production is exactly the same at a price ratio of
.
h. Suppose that capital is also required for producing food and clothing and that capital requirements per unit of food and per unit of clothing are 0.8 and 0.9, respectively. There are 100 units of capital available. What is the production possibility curve in this case? Answer part (e) for this case.