Reference no: EM131548008

An economy is endowed with 100 units of labor and 100 units of electricity, and 150 units of storage space to store the two final produce namely water and cloth. Both labor and electricity are used for producing two goods water and cloth, which may be used to produce saris and dhotis. Either 1 unit of labor can be used with the use of a manual hand pump to pump 1 gallon of ground water or one can use 1 unit of electricity with the help of an electric pump to pump 1 gallon of ground water. Manufacture of cloth requires both labor and electricity; 1 meter of cloth will require 2 units of electricity and 1 unit of labor. Both water and cloth needs to be stored in a common storage space, 1 gallon of water requires 1 unit of storage space and 1 meter of cloth requires 1 unit of storage space. Draw the Production Possibility Frontier for this economy, label points on the frontier where resources such as labor, electricity and storage space are fully utilized and places where they are not. Can we comment that all places on the frontier where resources are not fully utilized are technically inefficient from the Pareto point of view?