Answer to Question #81933 in Economics of Enterprise for Hatice

Question

4. An economy consists of three workers: Larry,
Moe, and Curly. Each works ten hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either
mow one lawn or wash two cars; and Curly can either mow two lawns or wash one car.
a. Calculate how much of each service is produced under the following circumstances, which we label A, B, C, and D:
• 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)
• Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D)
b. Graph the production possibilities frontier for this economy. Using your answers to part (a), identify points A, B, C, and D on your graph.
c. Explain why the production possibilities frontier has the shape it does.
d. Are any of the allocations calculated in part (a) inefficient? Explain.

Answer 1

a. Calculate how much of each service is produced under the following circumstances, which we label A, B, C, and D:

• All three spend all their time mowing lawns: A(40 lawns; 0 cars),

• All three spend all their time washing cars: B(0 lawns; 40 cars),

• All three spend half their time on each activity: C(20 lawns; 20 cars),

• Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns: D(25 lawns; 25 cars).

b. Points A, B, C, and D will form the production possibilities frontier for this economy, which is a boiled out curve.

c. The production possibilities frontier has the shape of boiled out curve, because some resources are are better for producing one good, and some of them are better for producing another good, so the middle points are higher on the graph than the points where only one good is produced.

d. The allocation C is inefficient, because it doesn't show the best possible use of resources and point D shows the better allocation of the same resources.