Question: Suppose that an economy produces only two goods, X and Y. The economy's resource includes:100 machines and 50 workers. Each machine can produce 2 units of X or 4 units of Y per period. Each worker can produce 6 units of X or 6 units of Y per period.
a. Draw the production possibilities frontier (PPF) of this economy.
b. If the economy needs exactly 400 units of X, what is the maximum number of Y-units that can be produced? How many machines and workers will produce X and how many will produce Y? Show your calculations.
c. Is it possible to produce 300 units of X and 100 units of Y? Why? Is it a good choice? Explain.
d. Suppose the economy produces 400 units of X. Calculate the opportunity cost of producing one more unit of X.
e. A discovery of new technology reduces the producing time of a single unit of X. What will happen to the PPF? Draw the new PPF at the same diagram.
f. Suppose that each unit of X (or Y) needs also 1 unit of storage space. Draw the production possibilities frontier if the economy has 600 units of storage space.
g. Suppose that you can buy (but not sell) units of storage space by giving up machines. Can you benefit from trade? Explain your answer.