Question

4. Problems and Applications Q4 An economy consists of three workers: Rajiv, Yakov, and Charles. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Rajiv can either mow 2 lawns or wash 1 car; Yakov can either mow 1 lawn or wash 1 car; and Charles 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 Scenario Lawns Mowed Cars Washed All three spend all their time mowing lawns. (A) All three spend all their time washing cars(B) All three spend half their time on each activity. (C) Rajiv spends half his time on each activity, while Yakov only washes cars and Charles only mows lawns. (D) In the following table, identify the opportunity cost of washing cars for each worker. Worker Opportunity Cost of Washing Cars Yakov Charles

Answer 1

4. (A) Lawn mowed by Rajiv, Yakov and Charles = 2 x 10hours + 1 x 10 + 1 x 10 = 20 + 10 + 10 = 40

(B) Car washed by all = 1 x 10 + 1 x 10 + 2 x 10 = 40

(C) Lawn mowed = 2 x 5 hours + 1 x 5 + 1 x 5 = 10 + 5 + 5 = 20

Car washed = 1 x 5 hours + 1 x 5 + 2 x 5 = 20

(D) Lawn mowed = 2 x 5 hours + 1 x 10 hours = 20

Car washed = 1 x 5 + 1 x 10 = 15

Opportunity cost is the value of next best alternative foregone.

1. Rajiv:

1 car wash = 2 lawn mowed

It implies opportunity cost of washing car is 2 Lawn mowed.

2. Yakov:

1 car wash = 1 lawn mowed

Opportunity cost of 1 car wash is 1 lawn mowed.

3. Charles:

2 car wash = 1 lawn mowed

1 car wash = 1/2 or 0.5 lawn mowed

Opportunity cost is 0.5 lawn mowed.

null

True.

A, B, C - These are efficient because lie on the PPF.

D is inefficient because it lies below PPF which kept some resources idle.