
Subpart (a):
Calculate the member of required labor.
Subpart (a):

Explanation of Solution
Number of workers required to produce one unit of goods can be calculated using the following formula.
Substitute the respective values in Equation (1) to calculate the required number of person to produce one unit of car in U.S.
Required labor to produce one unit of car in U.S. is 0.25.
Table 1 illustrates the workers required to produce a car and a ton of grain in the U.S. and the Japan that obtained by using Equation (1).
Table 1
Workers required to produce | ||
One Car | One Ton of Grain | |
U.S. | 0.25 workers | 0.10 workers |
Japan | 0.25 workers | 0.20 workers |
Concept introduction:
Subpart (b):
Draw the production possibility frontier.
Subpart (b):

Explanation of Solution
Figure 1 shows the productive capacity of two countries.
In Figure 1, the horizontal axis measures the quantity of grains produced by both the countries and the vertical axis measures the quantity of cars produced. If either economy, that is, the U.S. or Japan devotes all of its 100 million workers in producing cars each economy can produce 400 million cars in a year
Concept introduction:
Production Possibility Frontier (PPF): PPF refers to the maximum possible combinations of output of goods or services that an economy can attain by efficiently utilizing and employing full resources.
Subpart (c):
Calculate the opportunity cost.
Subpart (c):

Explanation of Solution
Opportunity cost of a car for the U.S. is calculated as follows.
Thus, the opportunity cost of a car for the U.S. is 2.5 tons of grains.
Opportunity cost of a car for Japan is calculated as follows.
Thus, the opportunity cost of a car for Japan is 1.25 tons of grains.
Opportunity cost of producing a ton of grains in the U.S. is calculated as follows
Thus, the opportunity cost of producing a ton of grains in the U.S. is 0.4 units of cars.
Opportunity cost of producing a ton of grains in Japan is calculated as follows.
Thus, the opportunity cost of producing a ton of grains in Japan is 0.8 units of cars.
The results can be tabulated in Table 2 below.
Table 2
Opportunity Cost | ||
One Car | One Ton of Grain | |
U.S. | 2.5 tons of grains | 0.4 units of car |
Japan | 1.25 tons of grains | 0.8 units of car |
Concept introduction:
Opportunity cost: Opportunity cost is the cost of a foregone alternative, that is, the loss of other alternative when one alternative is chosen.
Subpart (d):
Find the country that has absolute advantage in the production of goods.
Subpart (d):

Explanation of Solution
Neither of these countries has an absolute advantage in producing cars. This is because they are equally productive in the production of a car (4 cars per worker per year). However, in the production of grains, the United States has an absolute advantage because it is more productive than Japan. The U.S. can produce 10 tons of grains per worker per year; whereas Japan can produce only 5 tons of grains per worker per year.
Concept introduction:
Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.
Subpart (e):
Find the country that has absolute advantage in the production of goods.
Subpart (e):

Explanation of Solution
Japan has a
Concept introduction:
Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.
Subpart (f):
Calculate the total production before the trade.
Subpart (f):

Explanation of Solution
Without trade and with half the workers in each country producing each of the goods, the United States would produce 200 million cars
Concept introduction:
Trade: The trade refers to the exchange of capital, goods, and services across different countries.
Subpart (g):
Gains from trade for the U.S. and Japan.
Subpart (g):

Explanation of Solution
Firstly, consider the situation without trade in which each country is producing some cars and some grains. Suppose the United States shifts its one worker from producing cars to producing grain, then that worker would produce 4 cars and 10 additional tons of grain. Now suppose, with trade, the United States offers to trade 7 tons of grain to Japan for 4 cars. The United States would encourage this because the cost of producing 4 cars in the United States is 10 tons of grain. So by trading, the United States can gain 4 cars for a cost of only 7 tons of grain. Hence, it is better off by 3 tons of grain.
The same is applicable for Japan, if Japan changes one worker from producing grain to producing cars. That worker would produce 4 more cars and 5 fewer tons of grain. Japan will take the trade because Japan will be better off by 2 tons of grain.
So with the trade and the change of one worker in both the United States and Japan, each country gets the same amount of cars as before but gets additional tons of grain (3 tons of grains for the United States and 2 tons of grains for Japan) making both countries better off.
Concept introduction:
Trade: The trade refers to the exchange of capital, goods, and services across different countries.
Want to see more full solutions like this?
Chapter 3 Solutions
Principles of Macroeconomics (MindTap Course List)
- Asap pleasearrow_forwardTasks Exercise 1 Assess the following functions: 1. f(x)= x2+6x+2 2.f '(x)=10x-2x2+5 a. Find the stationary points. (5 marks) b. Determine whether the stationary point is a maximum or minimum. (5 marks) c. Draw the corresponding curves (5 marks)arrow_forwardProblem 2: The sales data over the last 10 years for the Acme Hardware Store are as follows: 2003 $230,000 2008 $526,000 2004 276,000 2009 605,000 2005 328,000 2010 690,000 2006 388,000 2011 779,000 2007 453,000 2012 873,000 1. Calculate the compound growth rate for the period of 2003 to 2012. 2. Based on your answer to part a, forecast sales for both 2013 and 2014. 3. Now calculate the compound growth rate for the period of 2007 to 2012. 1. Based on your answer to part e, forecast sales for both 2013 and 2014. 5. What is the major reason for the differences in your answers to parts b and d? If you were to make your own projections, what would you forecast? (Drawing a graph is very helpful.)arrow_forward
- Exercise 4A firm has the following average cost: AC = 200 + 2Q – 36 Q Find the stationary point and determine if it is a maximum or a minimum.b. Find the marginal cost function.arrow_forwardExercise 4A firm has the following average cost: AC = 200 + 2Q – 36 Q Find the stationary point and determine if it is a maximum or a minimum.b. Find the marginal cost function.arrow_forwardExercise 2A firm has the following short-run production function: Q = 30L2 -0.5L3a. Make a table with two columns: Production and Labour b. Add a third column to the table with the marginal product of labour c. Graph the values that you estimated for the production function and the marginal product oflabour Exercise 3A Firm has the following production function: Q= 20L-0.4L2a. Using differential calculus find the unit of labour that maximizes the production. b. Estimate function of Marginal product of labor c. Obtain the Average product of labor. d. Find the point at which the Marginal Product of Labour is equal to the Average Product of Labour.arrow_forward
- Problem 3 You have the following data for the last 12 months' sales for the PRQ Corporation (in thousands of dollars): January 500 July 610 February 520 August 620 March 520 September 580 April 510 October 550 May 530 November 510 June 580 December 480 1. Calculate a 3-month centered moving average. 2. Use this moving average to forecast sales for January of next year. 3. If you were asked to forecast January and February sales for next year, would you be confident of your forecast using the preceding moving averages? Why or why not? expect? Explain.arrow_forwardProblem 5 The MNO Corporation is preparing for its stockholder meeting on May 15, 2013. It sent out proxies to its stockholders on March 15 and asked stockholders who plan to attend the meeting to respond. To plan for a sufficient number of information packages to be distributed at the meeting, as well as for refreshments to be served, the company has asked you to forecast the number of attending stockholders. By April 15, 378 stockholders have expressed their intention to attend. You have available the following data for the last 6 years for total attendance at the stockholder meeting and the number of positive responses as of April 15: Year Positive Responses Attendance 2007 322 520 2008 301 550 2009 398 570 2010 421 600 2011 357 570 2012 452 650 1. What is your attendance forecast for the 2013 stockholder meeting? 2. Are there any other factors that could affect attendance, and thus make your forecast inac- curate?arrow_forwardProblem 4 Office Enterprises (OE) produces a line of metal office file cabinets. The company's economist, having investigated a large number of past data, has established the following equation of demand for these cabinets: Q=10,000+6013-100P+50C Q=Annual number of cabinets sold B = Index of nonresidential construction P = Average price per cabinet charged by OE C=Average price per cabinet charged by OE's closest competitor It is expected that next year's nonresidential construction index will stand at 160, OE's average price will be $40, and the competitor's average price will be $35. 1. Forecast next year's sales. 2. What will be the effect if the competitor lowers its price to 832? If it raises its price to $36? 3. What will happen if OE reacts to the decrease mentioned in part b by lowering its price to $37? 4. If the index forecast was wrong, and it turns out to be only 140 next year, what will be the effect on OE's sales? If not, what does it measure?arrow_forward
- Name: Problem 1: Managerial Economics, Assignment 5 April 20, 2025 If the sales of your company have grown from $500,000 five years ago to $1,050,150 this year, what is the compound growth rate? If you expect your sales to grow at a rate of 10 percent for the next five years, what should they be five years from now?arrow_forward1. In this question, assume all dollar units are real dollars in billions. For example, $100 means $100 billion. Argentina thinks it can find $105 of domestic investment projects with a marginal product of capital (MPK) equal to 10% (each $1 invested in year 0 pays off $0.10 in every later year). Assume a world real interest rate r*is 5%, and initial external wealth W (W in year -1) is 0. a. You find that the formula on the lecture slide: > r*, which means that a country will ΔΟ AK take on investment projects as long as the marginal product of capital (MPK) is at least as high as the real interest rate. Using this formula, answer if Argentina should conduct the project. b. If the projects are not done, GDP = Q = C = $200 in all years. Compute the present value of Q and C. c. If Argentina conducts the projects (investing $105), what is the present value of Q and C? d. If Argentina conducts the projects, what is the present value of C? Is Argentina better off with the investment?arrow_forward2. Consider a world of two countries: Highland (H) and Lowland (L). Each country has an average output of 9 and desires to smooth consumption. All income takes the form of capital income and is fully consumed each period. Initially, there are two states of the world: Pandemic (P) and Flood (F) each occurring with 50% probability. Pandemic affects Highland and lowers the output there to 8, leaving Lowland unaffected with an output of 10. Flood affects Lowland and lowers the output there to 8, leaving Highland unaffected with an output of 10. a. Assume that households in each country own the entire capital stock of their own land. Fill in the numbers on the following table. Pandemic Highland's income Lowland's income Flood Variation about the mean b. Assume that each country owns 50% of the other country's capital. Fill in the numbers on the following table. Pandemic Flood Variation about the mean Highland's income Lowland's income c. Compare your answer to (a) and (b). Does…arrow_forward
- Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage LearningEssentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning





