Suppose that at the current factor price one yard of cloth is produced using 10 hours of labor and one acre of land, and one calorie of food is produced using only 4 hours of labor and one acre of land. Suppose that the economy’s total resources are 25 acres of land and 200 hours of labor. (use T to label land)
a. Is the production of cloth a labor intensive or capital intensive business? Explain why or why not. Show your answer.
b. Write the full employment conditions. (Hint: use equation 5-1 and 5-2 on page 82 edition 9 textbook)
c. Draw the PPF without factor substitution. Identify the opportunity costs.
d. Calculate the amount of labor and land used in the production at each specialization and at the kinked points.
e. Suppose again that the economy’s total resources are now 50 acres of land and 200 hours of labor (labor remains the same). Which product will get more land and labor? (Answer based on HO model’s main claim, you don’t need to calculate).
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