Question

Suppose there are two countries, Home and Foreign, with factors of production labor (L) and capital (K) to produce two goods, Apple (X) and Pencil (Z). Home has 60 units of labor and 40 units of capital, while Foreign has 30 units of labor and 110 units of capital. Given unit input requirements, what is the production possibility frontier (PPF) for these two countries?

A) PPF slope for Home: -2/5; PPF slope for Foreign: -11/3
B) PPF slope for Home: -5/2; PPF slope for Foreign: -3/11
C) PPF slope for Home: -5/2; PPF slope for Foreign: -11/3
D) PPF slope for Home: -2/5; PPF slope for Foreign: -3/11

Answer 1

The production possibility frontier (PPF) for Home and Foreign countries can be determined using their respective factors of production, labor, and capital. The correct option is D) PPF slope for Home: -2/5; PPF slope for Foreign: -3/11.

Step-by-step explanation:

The production possibility frontier (PPF) for Home and Foreign countries can be determined using their respective factors of production, labor, and capital. Home has 60 units of labor and 40 units of capital, while Foreign has 30 units of labor and 110 units of capital.

Let's consider the unit input requirements: Home requires 1 unit of labor and 10 units of capital to produce 1 unit of Apple, and it requires 2 units of labor and 5 units of capital to produce 1 unit of Pencil. So, the slope of Home's PPF is
-∆Apple/∆Pencil = -1/10 / -2/5 = -1/5 * 5/2 = -1/2 * 5/2 = -5/2

Similarly, for Foreign, the slope is

-∆Apple/∆Pencil = -1/30 / -2/11 = -1/30 * 11/2 = -11/60 * 2/1 = -11/30

Therefore, the correct option is D) PPF slope for Home: -2/5; PPF slope for Foreign: -3/11.