Answer to Question #87013 in Finance for sij kinna

Question

Tom is a full-time lecturer at a private higher institution and is considering a career in carpentry. He wishes to pursue a career in carpentry (a childhood dream) which he has studied part-time and is now equipped to take on clients. In his current position he earns a rate of R1000 per day and if he were to pursue a career in carpentry he would earn R800 per day, Due to the flexibility of the employment conditions at the higher education institution hew works for, Tom can negotiate the number of days he works at and will receive a rate of enumeration based on the number of days worked

1. Construct a production possibility frontier to illustrate tom’s earnings potential between the two careers if initially he was not working as a carpenter, then he worked one week per month, then two, then three and finally four weeks per month (assuming only four weeks in a month)

Answer 1

The production possibility frontier in this case is a bowed-out curve, which will show the potential combinations of working on both positions and the maximal possible amount earned. If y-axis is working as lecturer and x-axis is working as carpenter, then this curve will start at the point (0; R20000) and will end at the point (R16000; 0), if there is 20 working days per month (5 per week).