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An economy produces two goods, ore and lumber. When mining 1 unit of ore, .2 units of ore are consumed. When producing 1 unit of lumber, .3 units of ore and .5 units of lumber are consumed. According to the Leontief model, if there is an external demand of 20 units of ore and 8 units of lumber, what is the production schedule?

a. 25 units of ore, 10 units of lumber
b. 20 units of ore, 8 units of lumber
c. 15 units of ore, 5 units of lumber
d. 10 units of ore, 2 units of lumber

1 Answer

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Final Answer:

c. 15 units of ore, 5 units of lumber

Step-by-step explanation:

In the Leontief model, the production schedule is determined based on the external demand for goods and the input-output coefficients. To meet the external demand of 20 units of ore and 8 units of lumber, we must use the coefficients provided.

For 20 units of ore, the internal consumption is 20 * 0.2 = 4 units of ore. Subtracting this from the total production gives 20 - 4 = 16 units of ore available for external demand. For 8 units of lumber, the internal consumption is 8 * 0.3 = 2.4 units of ore. So, the external demand for ore is 16 - 2.4 = 13.6 units.

To find the production of lumber, we use the input-output coefficients. For 13.6 units of ore, the production of lumber is 13.6 * 0.5 = 6.8 units.

Therefore, the production schedule is 15 units of ore (external demand) and 6.8 units of lumber, which can be approximated to 5 units. The correct option is c. 15 units of ore, 5 units of lumber.

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