Consider a simple two person economy in which the two

Reference no: EM13376037

Consider a simple, two person economy, in which the two citizens, Curly and Moe, can produce two different goods, butter and rice, in an 8 hour workday. In one hour, Curly can either produce 1 lb. of butter or produce 2 lbs. of rice. In one hour, Moe can either produce 2 lbs. of butter or produce 1 lb. of rice.

1) Draw the production possibilities frontier (PPF) for one day.

a) Hint: determine the maximum number of lbs. of butter the economy can produce

b) Hint: determine the maximum number of lbs. of rice the economy can produce

c) Hint: if the economy is producing the maximum number of lbs. of butter possible (which means it isn't producing any rice!), but it is decided that society would like some rice, whom would you ask first to start producing rice, Curly or Moe?

d) Hint: the PPF is not a straight line. For any production point chosen (on or within the PPF!), it must be decided how that production point is allocated. A fully defined allocation consists of four values (RC, RM, BC, BM) where RC is the amount of rice Curly gets, BM is the amount of butter Moe gets, etc. Of course the allocation determines the utility received by Curly and Moe. Suppose the utility (U) of Curly is: UC = RC + BC and that of Moe is: UM = RM + BM. 2) Draw the utility possibilities frontier (UPF) for this economy.

3) Find a production point that lies on the PPF that can be allocated in such a way that UC = UM = 12. Be sure to tell me what the production point is (i.e. how many total lbs. of butter and total lbs. of rice are produced) and also how it is allocated (i.e. how many lbs. of each good each member of the economy gets). Hint: there is more than one production point and allocation that answers this question. Hint: I wouldn't trick you, so the point (12, 12) must lie either on or within your UPF.

Reference no: EM13376037

Questions Cloud

1 explain how demand elasticity and total revenue are all : 1 explain how demand elasticity and total revenue are all related to each other. explain this relationship using at

1 a describe the four market types by writing a separate : 1. a. describe the four market types by writing a separate paragraph for each. in your response for each market type be

A compare the initial sum of profits of the two individual : a compare the initial sum of profits of the two individual firms p1 p2 with the profits of the merged firm pa. explain

Answer the following questions based on the graph that : answer the following questions based on the graph that represents j.r.s demand for ribs per week of ribs at judys rib

Consider a simple two person economy in which the two : consider a simple two person economy in which the two citizens curly and moe can produce two different goods butter and

Would you expect the price elasticity of demand to be : would you expect the price elasticity of demand to be higher at the level of an individual school or at the aggregate

Pricing strategy varies significantly across different : pricing strategy varies significantly across different market structures. the pricing guidelines in a monopoly market

Part-1q1 externalities are third party consequence of some : part-1q1 externalities are third party consequence of some other action. they can be positive or negative externalities

1 a firm in a competitive market invents a new method of : 1. a firm in a competitive market invents a new method of production that lowers its marginal costs. what happens to

User Account

All Pages