Question

 4. Problems and Applications Q4

 An economy consists of three workers: Bob, Eric, and Kenji. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Bob can either mow 2 lawns or wash 1 car; Eric can either mow 1 lawn or wash 1 car; and Kenji can either mow 1 lawn or wash 2 cars.

 For each of the scenarios listed in the following table, determine how many lawns will be mowed and how many cars will be washed per day and enter these values into the corresponding row.

 In the following table, identify the opportunity cost of washing cars for each worker.

 Assume that the resources best suited to producing a particular service are preferentially used in the production of that service and that as the economy moves down along the production possibilities frontier, one worker at a time is transferred from mowing lawns to washing cars. Using the blue points (circle symbol), graph the production possibilities frontier (PPF) for this economy on the following graph. Then use the black point (plus symbol) to identify point A, the green point (triangle symbol) to identify point B, the orange point (square symbol) to identify point C, and the purple point (diamond symbol) to identify point D on the graph.

 True or False: The production possibilities frontier consists of straight-line segments, rather than being smoothly bowed outward throughout, because each worker faces a constant trade-off between mowing lawns and washing cars.

•  True

•  False

 Indicate whether each of the following allocations is efficient or inefficient.

Answer 1

Scenario	Lawns	Cars
A	40	0
	10*2+10*1+10*1
B	0	40
		10*1+10*1+10*2
C	20	20
	5*2+5*1+5*1	5*1+5*1+5*2
D	20	15
	5*2+10*1	5*1+10*1

Bob = 2/1 = 2 lawns
Eric = 1/1 = 1 lawns
Kenji = 1/2 = 0.5 lawns

Best allocation of resource:
Lawns mowed: 10*2+5*2 = 25
Cars washed: 5*1+10*2 =25

False, as each worker does not have a constant trade-off

A and B efficient as they lie on PPF
C and D inefficient as they lie within PPF