In the Heckscher Ohlin two good (food and cloth), two factor (capital and labour) model suppose that the following information is given: The economy has 6,000 units of capital and 4,000 units of labour. Also, Producing one yard of cloth requires a combination of 4 labour-hours and 4 machine-hours. The production of one unit of food requires 2 labour-hour and 6 machine-hour. There is no possibility of substitution labour for capital. Write out the resource constraint equation for (a) capital (b) labour (c) What can you say about the shape and characteristics of the PPF? (d) Draw the PPF of this economy and explain what is going on.
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- For these two example questions, answer if each is an input (cost) or output (production) problem. *1* Texans require 10 labor hours per unit of beef produced and 30 labor hours per unit of cotton produced. Virginians require 15 labor hours per unit of beef and 40 hours per unit of cotton. *2* Refinery X can produce 22 gallons of gasoline or 18 gallons of flight fuel per barrel of crude oil. Refinery Y can produce 18 gallons of gasoline or 16 gallons of flight fuel per barrel of crude oil O output, output Oinput, input O input, output O output, inputSuppose there are two countries, Home and Foreign, that produce two goods, fish (F) and edamame (E), using only labor. In the Home country 6 units of labor are required to produce each unit of fish and the same for each unit of edamame. In the Foreign country, 2 units of labor is required to produce each fish and 3 units of labor are required for each unit of edamame. Each country has a labor force of 30 units available for production. Suppose further that consumers in both countries have identical Leontief preferences, utility function U(CF, CE) = min(CF, CE), meaning that they want to consume the two goods in a fixed proportion of one-to-one, i.e. CF = CE (there is no substitution between the goods). Suppose now that the labor force of the Home country is 6 times as big (i.e. 180 units, instead of 30). How does this increase in labor force at Home change the pattern of trade? Will the gains from trade for the Home country be higher or lower now? What happens to the welfare of the…Given that Nathan has 10 acres and can grow 15 bales of hay or 40 bushels of corn on an acre, while Simon has 10 acres and can grow 20 bales of hay or 35 bushels of corn per acre. I am trying to come up with the equations to find out the maximum amount of produce they can jointly produce.
- Suppose two economies Home (H) and Foreign (F) produce two goods, bread and wine, with only one production factor: labour. Production technology, expressed as marginal product of labour (MPL), is given in the following table: Technologies expressed as MPL Bread Wine Home 1/6 1/12 Foreign 1/4 1/2 Suppose that Home has 2400 units of labour and Foreign has 1800 units of labour. a Derive the Production Possibilities Frontier (PPF) and the Consumption Possibility Frontier (CPF) for Home and Foreign, with bread on the horizontal axis and wine on the vertical axis. What is the autarky equilibrium price of bred relative to wine in each country? b. What country has the absolute advantage in producing each good? What country has the comparative advantage in producing each good? Briefly explain the difference between these two concepts. Suppose both countries are now free to trade. The world relative price of bread is 1. c.) What is the pattern of specialisation and trade? Briefly…Question 1 Consider an economy which is producing two goods computers (C) and shoes (S) using two factors of production capital and labor. To produce one computer, it requires 200 units of capital and 5 units of labor. To produce a pair of shoes, it requires 10 units of capital and 1 units of labor. (Unlike the Cobb-Douglas production used in the text, here we are using fixed proportions (Leontief) production functions to make the math easier. That is, the 2 inputs are used in fixed proportions and cannot be substituted for each other) (a) Calculate the capital/labor ratios used in computers and shoes. Which good is more capital-intensive? Now, suppose the price of one computer is $500 and the price of a pair of shoes is $40. (b) Using the information on goods prices and the production function for the two goods calculate the wage and the rental rate of capital. (c) Suppose the price of computer increases to $650 but the price of shoes remains at $40. Verify the Stolper-Samuelson…Suppose a nation has a total of 12 units of labor, which can be used to produce either guns or butter. One gun takes 6 units of labor to produce and 1 butter takes 2 units of labor to produce. Why shouldn't the nation produce 1 gun and 2 butters?
- The productive capability of an economy is such that to produce 5 units of military good it takes 2 workers to be employed while 10 units of consumer goods require 3 workers. Resources are limited in such a way that only 75 units of military good can be produced when all resources are employed. a) Construct the production possibility schedule and curve for this economy. b) Graphically represent what would happen if 12 additional workers were added to the economy. c) Graphically represent what would happen if the productivity of the workers were reduced to 2 units of military good and 5 units of consumer goods. d) Graphically represent what would happen if productivity for military goods remained the same but it now required 2 workers to produce 10 units of consumer goods17. For a certain good the production function is given by the equation q = q²qc, where q is the produced output in units of 1000 and qL and qc are the number of units of labour and of capital invested in the production process. Assume that one unit of labour costs 10 units of money and one unit of capital costs 5 units of money. (a) Show on a graph which combinations (qL, qc) generate exactly 64 000 units of output. Put qL on the horizontal axis of the graph and qc on the vertical axis. (b) Explain how one can see on the graph of part a which combinations (qL, qc) allow to produce 64 000 units using a budget of exactly 100 units of money. (c) Explain how one can see on the graph of part a which combinations (qL, qc) allow to produce 64 000 units in the cheapest possible way.Assume that Max and Min can switch between producing mittens and producing hats at a constant rate. Labor Hours Needed to Quantity Produced in 36 Make 1 Hours Mitten Hat Mitten Hat Мах 2 18 6 Min 2 4 18 9 Refer to Table 3-6. Which of the following points is on Max's production possibilities frontier, based on a 36-hour production period? (18 mittens, 0 hats) (15 mittens, 8 hats) (16 mittens, 10 hats) (0 mittens, 12 hats)
- Suppose that initially Denali uses 1 million hours of labor per week to produce pistachios and 3 million hours per week to produce chinos, while Sequoia uses 3 million hours of labor per week to produce pistachios and 1 million hours per week to produce chinos. As a result, Sequoia produces 24 million pounds of pistachios and 32 million pairs of chinos, and Denali produces 12 million pounds of pistachios and 72 million pairs of chinos. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of pistachios and chinos it produces. Sequoia's opportunity cost of producing 1 pound of pistachios is4 pairs of chinos, and Denali's opportunity cost of producing 1 pound of pistachios is2 pairs of chinos. Therefore,Sequoia has a comparative advantage in the production of pistachios, andDenali has a comparative advantage in the production of chinos. Suppose that each country…b) There are two firms in the economy. Each firm employs positive amounts of capital and labour. The technology satisfies diminishing marginal rate of technical substitution of labour for capital. Currently, A’s marginal rate of technical substitution of labour for capital is 4 while B’s marginal rate of technical substitution of labour for capital is 2. Is the current production of the two firms efficient? If not, describe an exchange of inputs that would improve efficiency. Can these production levels of the two firms be observed in a perfectly competitive equilibrium of a production and exchange economy? Explain c) State the first theorem of welfare economics of a production and exchange economy. Which conditions must be satisfied for the Pareto efficiency of an allocation of a production and exchange economy (assuming that all goods are used, produced and consumed in strictly positive quantities)? Discuss and explainAssume that quantities do not need to be integers. That is, it is feasible for Andreas to knit 37.25 pairs of mittens. Andreas can knit 6 pairs of mittens in an hour. He can knit 5 scarves in an hour. Assuming efficient production, what is the opportunity cost, in terms of pairs of mittens, of Andreas choosing to knit one extra scarf?