Problem 1. Let the horizontal axis be the X variable and the vertical axis be the Y variable. There are two points. Point A has a value of X of 2 and a value of Y of 2 while point B has a value of X of 4 and a value of Y of 6.
a. Draw a straight line passing through both points.
b. Give the equation of that line.
c. Indicate the slope and the X and Y intercepts of that line.
d. Now consider another line: Y = 7 – X. Draw this second line in the graph that includes the former line.
e. Solve algebraically for the intersection of these lines.
Problem 2. You have to hire a new worker for your food processing plant. There are two candidates, Andreu and Jerry. Andreu is quite good at packing brats. In fact, he can pack 100 brats per hour. And he is not that bad at packing pizza; he can pack 50 pizzas per hour. Jerry, in contrast, can pack 75 brats per hour or 75 pizzas per hour.
a. First of all, consider the case of Andreu. What is the opportunity cost of packing one brat for Andreu? And what is the opportunity cost of packing one pizza for Andreu?
b. Then, take into account the case of Jerry. What is the opportunity cost of packing one brat for Jerry? And what is the opportunity cost of packing one pizza for Jerry?
c. Now, consider that the new worker will work 8 hours a day. Draw Andreu’s production possibility frontier for one work day.
d. Then, draw Jerry’s production possibility frontier for one work day.
e. Say that you want 900 pizzas and 600 brats to be packed and that you can hire only one worker. Who will be able to do both things in less time?
f. Finally, the tougher question: You can hire either of them or both of them at an hourly basis. They make the same hourly salary. Again, you want 900 pizzas and 600 brats to be packed. What would you do in this case?
Use the following table to answer question 3.
Hours needed to make one unit of:
Books Chips
Idaho 20 30
Wisconsin 30 90
Problem 3. The States of Wisconsin and Idaho both produce books and chips. These goods are made just from labor. The table above shows the hours of labor needed to make them at each State. We are assuming that the PPF for both States is linear. Each State has 900 hours of labor.
a. Draw the production possibilities frontiers (PPFs) for Idaho and Wisconsin with books on the horizontal axis and chips on the vertical axis.
b. Indicate the opportunity cost of 1 book, both for Wisconsin and Idaho.
c. Indicate the opportunity cost of 1 chip, both for Wisconsin and Idaho.
d. Which State has the comparative advantage in producing books? And which State has the comparative advantage in producing chips?
e. Which State has the absolute advantage in producing books? And which State has the absolute advantage in producing chips?