Answer to Question #179226 in Economics for Amna

Question

A certain economy produces only two consumer goods, X and Y. Only labor is required to

produce both goods, and the economy’s labor force is fixed at 100 workers. The table indicates the

amount of X and Y that can be produced daily with various quantities of labor.

Number of Workers 0, 20, 40, 60, 80, 100

Daily X Production 0, 10.0, 20.0, 25.0, 27.5, 30.0

Daily Y Production 0, 150, 250, 325, 375, 400

a. What is the opportunity cost of producing the first 10 units of good X? What is the opportunity

cost of producing the next 10 units of X (i.e., from 10 to 20)?

b. Suppose that a central planner in this economy was to call for an output combination of X = 35

and Y = 150. Is this plan attainable? Explain.

c. New technology is developed in X production, so that each worker can now produce double the

daily amount of X indicated in the schedule. Can the planner’s output combination in (b) now be

met?

Answer 1

a. The opportunity cost of producing the first 10 units of good X is 150 units of good Y.

The opportunity cost of producing the next 10 units of X is 100 units of good Y.

b. If a central planner in this economy was to call for an output combination of X = 35 and Y = 150, then this plan is unattainable, because it requires more labor than it is available in the country.

c. If new technology is developed in X production, so that each worker can now produce double the daily amount of X indicated in the schedule, then the planner’s output combination in (b) now can be met, but will be inefficient, because more output can be produced at that level of labor used.