One farmer can grow 1,500 bushels of corn on 2 acre of land with 300 hours of labor and 25 pounds of seed. Another farmer can grow 1,500 bushels of corn on 1 acre of land with 200 hours of labor and 25 pounds of seed.
1. Could both methods be technically efficient?
A.Technical efficiency cannot be compared in this instance.
B. Because the second farmer can produce the same amount of corn with fewer inputs, both methods cannot be technically efficient.
C. Both of these methods are technically efficient; many different production processes can be technically efficient.
2.Is it possible that both of these production processes are economically efficient?
A. Both could be economically efficient; the answer depends on the price of corn.
B. It is not possible for both to be economically efficient because the first farmer uses more total inputs than the second farmer.
C. It is not possible for both to be economically efficient because the first farmer is more technically efficient than the second farmer.
D. Both could be economically efficient; the answer depends on the cost of each input.
One farmer can grow 1,500 bushels of corn on 2 acre of land with 300 hours of labor and 25 pounds of seed. Another farmer can grow 1,500 bushels of corn on 1 acre of land with 200 hours of labor and 25 pounds of seed.
1. Could both methods be technically efficient?
A.Technical efficiency cannot be compared in this instance.
B. Because the second farmer can produce the same amount of corn with fewer inputs, both methods cannot be technically efficient.
C. Both of these methods are technically efficient; many different production processes can be technically efficient.
2.Is it possible that both of these production processes are economically efficient?
A. Both could be economically efficient; the answer depends on the price of corn.
B. It is not possible for both to be economically efficient because the first farmer uses more total inputs than the second farmer.
C. It is not possible for both to be economically efficient because the first farmer is more technically efficient than the second farmer.
D. Both could be economically efficient; the answer depends on the cost of each input.
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A dressmaker can sew 1,300 garments with 200 bolts of fabric and 2,300 hours of labor. Another dressmaker can sew 1,300 garments with 100 bolts of fabric and 3,000 hours of identical labor. Fabric costs $110 a bolt and labor costs $30 an hour.
a. Is it possible for both methods to be technically efficient? Why or why not?
- | Yes, because neither dressmaker is using more of both inputs to produce the same number of garments. |
- | Yes, because both dressmakers make the same number of garments. |
- | No, because the first dressmaker uses 2,300 hours of labor while the second dressmaker uses 3,000 hours of labor. This means that the first dressmaker has higher productivity and therefore is the only one who is technically efficient. |
- | No, because the cost of the garments for the first dressmaker is $91,000. The cost of the same number of garments for the second dressmaker is $101,000. Therefore, the first method is technically efficient. |
b. Is it possible for both methods to be economically efficient? Why or why not?
- | No, because the second method has lower total costs of production. |
- | Yes, because even though their costs differ, the higher-cost dressmaker may be able to sell the garments at a higher price. |
- | Yes, because the dressmakers will sell the garments for the same price. |
- | No, because the first method has lower total costs of production. |
Consider two neighboring island countries called Felicidad and Contente. They each have 4 million labor hours available per month that they can use to produce jeans, corn, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor.
Country | Jeans | Corn |
---|---|---|
(Pairs per hour of labor) | (Bushels per hour of labor) | |
Felicidad | 8 | 32 |
Contente | 12 | 24 |
Initially, suppose Contente uses 1 million hours of labor per month to produce jeans and 3 million hours per month to produce corn, while Felicidad uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce corn. Consequently, Felicidad produces 24 million pairs of jeans and 32 million bushels of corn, and Contente produces 12 million pairs of jeans and 72 million bushels of corn. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and corn it produces.
Felicidad's opportunity cost of producing 1 pair of jeans is______ bushels of corn, and Contente's opportunity cost of producing 1 pair of jeans is______â bushels of corn. Therefore,______ has a comparative advantage in the production of jeans, and______ has a comparative advantage in the production of corn.
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces jeans will produce______million pairs per month, and the country that produces corn will produce______million bushels per month.
In the following table, enter each country's production decision on the third row of the table (marked "Production").
Suppose the country that produces jeans trades 26 million pairs of jeans to the other country in exchange for 78 million bushels of corn.
In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumption."
When the two countries did not specialize, the total production of jeans was 36 million pairs per month, and the total production of corn was 104 million bushels per month. Because of specialization, the total production of jeans has increased by______million pairs per month, and the total production of corn has increased by______million bushels per month.
Because the two countries produce more jeans and more corn under specialization, each country is able to gain from trade.
Calculate the gains from tradeâthat is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").
Felicidad | Contente | |||
---|---|---|---|---|
Jeans | Corn | Jeans | Corn | |
(Millions of pairs) | (Millions of bushels) | (Millions of pairs) | (Millions of bushels) | |
Without Trade | ||||
Production | 24 | 32 | 12 | 72 |
Consumption | 24 | 32 | 12 | 72 |
With Trade | ||||
Production | ||||
Trade action | ||||
Consumption | ||||
Gains from Trade | ||||
Increase in Consumption |