Answer to Question #320175 in Macroeconomics for Isay

Question

An economy consists of three workers: Larry, Moe, and Curly. Each works 10 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

Solution

Scenario 1:

40 lawns mowed; 0 washed cars

Scenario 2:

0 lawns mowed, 40 washed cars

Scenario 3:

20 lawns mowed; 20 washed cars

Scenario 4:

25 lawns mowed; 25 washed cars

b) The possibility frontier.

Scenario 3 is inefficient. More washed cars and mowed lawns can be produced by reallocating the time of the three individuals.