Question

An economy consists of three workers: Larry, Moe, and Curly. Each works ten hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; and Curly can either mow two lawns or wash one car.

a. Calculate how much of each service is produced under the following circumstances, which we label A, B, C, and D;

(i) All three spend all their time mowing lawns. (A)
(ii) All three spend all their time washing cars. (B)
(iii) All three spend half their time on each activity. (C)
(iv) Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D)

b. Graph the production function possibilities frontier for this economy. Using answers to part (a), identify points A,B,C, and D on your graph.

c. Explain why the production possibilities frontier has the shape it does.

d. Are any of the allocations calculated in part (a) inefficient? Explain.

Answer 1