In the Production Possibilities Frontier model, if labor is the scarce resource, what is the opportunity cost of increasing the production of capital goods? Group of answer choices A decrease in the available workforce A decrease in total capital investment An increase in wages A decrease in the production of consumer goods
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The PPF illustrates the trade-offs between two goods that an economy can produce, given fixed resources. In this case, we are considering capital goods and consumer goods. Show more…
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This graph contains three per-worker production functions: pwpf1, pwpf2, and pwpf3. The x-axis is labeled “Capital per hour worked, K/L” and the y-axis is labeled “Real GDP per hour worked, Y/L.” All three per-worker production functions begin at the origin where the x- and y-axes meet. All three per-worker production functions have the same curve, where they start out steep and plateau as they move to the right. Pwpf1 plateaus lower than pwpf2, and pwpf2 plateaus lower than pwpf3. There are 4 points, A-D, that are labeled on these per-worker production functions. Point A is on pwpf2. A vertical dashed line run from Point A to the x-axis, where the label (K/L)1 is marked. Points B, C, and D are on pwpf1, pwpf2, and pwpf3, respectively, and all three line up vertically with one another. A vertical dashed line runs through Points B, C, and D and goes down to the x-axis, where it’s labeled (K/L)2. Points A and B line up horizontally with one another. A horizontal dashed line runs through Points A and B over to the y-axis; this line is labeled (Y/L)1. A second horizontal dashed line runs from Point C over to the y-axis and is labeled (Y/L)2. A third horizontal dashed line runs from Point D over to the y-axis and is labeled (Y/L)3. Holding all else constant, a movement from A to C can be explained by: Group of answer choices An increase in capital A negative technological change An increase in labor A positive technological change
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Suppose a firm uses labor and capital resources which are highly substitutable. At the current output level marginal product of labor is 15 units and marginal product of capital is 10 units. If unit price of labor is $15 and unit price of capital is $20. What do you recommend this firm to reach optimal combination of resources? Group of answer choices increase use of both labor and capital increase use of labor and decrease use of capital decrease use of both labor and capital decrease use of labor and increase use of capital
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