4. Production Possibility Frontier An economy consists of three...

4. Production Possibility Frontier

An economy consists of three workers: Kevin, Rajiv, and Yakov. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Kevin can either mow 1 lawn or wash 1 car; Rajiv can either mow 1 lawn or wash 2 cars; and Yakov can either mow 2 lawns or wash 1 car.

For each of the scenarios listed in the following table, determine how many lawns will be mowed and how many cars will be washed per day and enter these values into the corresponding row.

Scenario Lawns Mowed Cars Washed All three spend all their time mowing lawns. (A) All three spend all their time washing cars. (B ) All three spend half their time on each activity. C) Kevin spends half his time on each activity, while Rajiv only washes cars and Yakov only mows lawns. (D)

In the following table, identify the opportunity cost of washing cars for each worker.

Worker Opportunity Cost of Washing Cars

Kevin    

Rajiv    

Yakov    

Assume that the resources best suited to producing a particular service are preferentially used in the production of that service and that as the economy moves down along the production possibilities frontier, one worker at a time is transferred from mowing lawns to washing cars. Using the blue points (circle symbol), graph the production possibilities frontier (PPF) for this economy on the following graph. Then use the black point (plus symbol) to identify point A, the green point (triangle symbol) to identify point B, the orange point (square symbol) to identify point C, and the purple point (diamond symbol) to identify point D on the graph

50

45

40

35

30

25

Quantity of Lawns Mowed 20

10

5

0

0 5 10 15 20 25 30 35 40 45 50

Quantity of Cars Washed

True or False: The production possibilities frontier consists of straight-line segments, rather than being smoothly bowed outward throughout, because each worker faces a constant trade-off between mowing lawns and washing cars.

True/False

Indicate whether each of the following allocations is efficient or inefficient.

Allocation Efficient Inefficient

A

B

C

D