Question

Suppose there are two countries, USA and Japan. USA is regarded as the home country and Japan is the foreign country. USA has 100 units of labor available and Japan has 80 units of labor. Both countries can produce only two goods, airplanes and cars. The output per hour of labor in the production of airplanes in the USA is 12, while in car production the output per hour of labor is 6. In Japan, the output per hour of labor in the production of airplanes is 2 and the output per hour of labor in the production of cars is 2.

1. Using the inverse of the marginal product of labor, construct a table of the unit labor requirement.

2. Derive the opportunity cost for both USA and Japan for both goods using the unit labor requirement table that you created above

Answer 1

1.

	Unit labor requirement for production of 1 airplane	Unit labor requirement for production of 1 car
USA	1/12	1/6
Japan	1/2	1/2

2. Opportunity cost 1 airplane in USA = Unit labor requirement for production of 1 airplane/Unit labor requirement for production of 1 car = (1/12)/(1/6) = 6/12 = 0.5 car
Opportunity cost 1 car in USA = Unit labor requirement for production of 1 car/Unit labor requirement for production of 1 airplane = (1/6)/(1/12) = 12/6 = 2 airplanes

Opportunity cost 1 airplane in Japan = Unit labor requirement for production of 1 airplane/Unit labor requirement for production of 1 car = (1/2)/(1/2) = 2/2 = 1 car
Opportunity cost 1 car in Japan = Unit labor requirement for production of 1 car/Unit labor requirement for production of 1 airplane = (1/2)/(1/2) = 2/2 = 1 airplane