Consider a world composed of two countries, Home (H) and Foreign (F). Individuals living in each countryi = H, F have preferences over two goods x and y.In each country there is only one factor of production, labour, which is perfectly mobile between industries butimmobile between countries. The total labour endowment at Home is LH 10 and the total labour endowmentin Foreign is LF= 10.=The marginal product of labour in each industry is constant. At Home, one worker can produce 2 units ofgood x or 1 unit of good y per unit of time; at Foreign one worker can produce 1 unit of good x or 2 units of goody per unit of time.Assume that consumers in Home and Foreign always consume goods x and y in the same quantity regardlessof their prices. That is, Cxi = Cyi, i = H, F.(a) Calculate the opportunity cost of producing one additional unit of good x in terms of units of good y in Homeand Foreign.

When a specific activity is chosen to be done, the value of the next best alternative one has to…

Answered: (a) Calculate the opportunity cost of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a world composed of two countries, Home (H) and Foreign (F). Individuals living in each country
i = H, F have preferences over two goods x and y.
In each country there is only one factor of production, labour, which is perfectly mobile between industries but
immobile between countries. The total labour endowment at Home is LH 10 and the total labour endowment
in Foreign is LF
= 10.
=
The marginal product of labour in each industry is constant. At Home, one worker can produce 2 units of
good x or 1 unit of good y per unit of time; at Foreign one worker can produce 1 unit of good x or 2 units of good
y per unit of time.
Assume that consumers in Home and Foreign always consume goods x and y in the same quantity regardless
of their prices. That is, Cxi = Cyi, i = H, F.
(a) Calculate the opportunity cost of producing one additional unit of good x in terms of units of good y in Home
and Foreign.

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Derive the production possibilities frontier (PPF) for Home and Foreign and plot it in a graph with good x in the horizontal axis and good y in the vertical axis.

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