Questions

Production Functions and PPFs

1. Given the production function Qx = 3 Lx,
answer the following questions:

a. How much of good X will be produced if 40 units of labor are devoted to the production of good X?
b. What is the labor productivity coefficient? Give both the numerical value and explain what it tells you.
c. What is the activity requirement? What does it tell you and what is its relation to the labor productivity coefficient?
d. Suppose that the wage for an hour of labor (which we assume is the unit of labor in our production function) is $ 9. What will the minimum possible price of good X be?

2. Given the production function Qy = 5 Ly,
answer the same questions as above.
Also answer the following:

e. For which good is labor more productive?
f. For which good is the labor activity requirement higher?
g. What is the relative price of the two goods? Explain.

3. Given the production functions of problems 1 and 2, calculate the opportunity cost of good X in terms of good Y,
and the opportunity cost of good Y in terms of good X. Explain the relation between opporunity cost and prices in an autarkic Ricardian economy.

4. Given the production functions of problems 1 and 2, and a labor force of 120 workers, fill in the following table: (some points may be impossible or inefficient )

Labor allocations and Production Possibilities
Case	Lx	Ly	Qx	Qy
A	0	----	----	----
B	----	60	----	----
C	----	----	90	----
D	----	----	----	100
E	40	----	----	----
F	----	----	90	100
G	20	20	----	----
H	----	----	360	80

Are any points impossible with the resources and production functions given? If so, which ones and why? Are any points inefficient with the resources and production functions given? If so, which ones and why?

5. Draw a graph of the production possibility frontier defined by the above problems.

Answers to the above problems

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UPJ Economics Department Last modified: Sun Sep 08 20:39:32 1996