Answer to Question #212098 in Microeconomics for help

Question

Suppose Germany and France each produce only two goods, guns and butter. Both are produced using labor alone. Assuming both countries are at full employment, you are given the following information: Germany: 10 units of labor required to produce 1 gun 5 units of labor required to produce 1 pound of butter Total labor force: 1,000,000 units France: 15 units of labor required to produce 1 gun 10 units of labor required to produce 1 pound of butter Total labor force: 750,000 units a. Draw the production possibility frontiers for each country in the absence of trade.

Answer 1

Given two countries producing two goods using only one factor of production i.e. labour.

Germany and France each produces only two goods, guns and butter. Both are produced using labour alone. Assuming that the both countries are at full employment, and given the following information:

Germany: 10 units of labour required producing 1 gun, and 5 units of labour required to produce 1 pound of butter. Total labour force is 1,000,000.

France: 15 units of labour required producing 1 gum, and 10 units of labour required to produce 1 pound of butter. Total labour force is 750,000 units.

The production possibility curve is a curve which graphically represents the maximum combination of two goods that can be produced using the economies resources fully and efficiently.

Germany requires 10 units of labour to produce 1 unit of gun. The total units of guns produced using 1,000,000 units of labour is obtained by diving the total units of labour by the total labour units required to produce 1 gun. Thus, the x-axis intercept for the total value of guns produced in Germany is 100,000 units of gun.

Germany requires 5 units of labour to produce 1 pound of butter. The total quantity of butter produced using 1,000,000 units of labour is obtained by diving the total units of labour by the total labour units required to produce 1 pound of butter. Thus, the y-axis intercept for the total quantity of butter produced in Germany is 200,000 pounds of butter.

Follow the same steps to sketch the production possibility curve for France.

France requires 15 units of labour to produce 1 unit of gun and 10 units of labour to produce 1 pound of butter.

Total units of guns produced using 750,000 units of labour are 50,000 units and total quantity of butter produced is 75,000.