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Suppose that the production of a unit of wine requires 30 units of labor and 15 units of land and the production of a
Suppose that the production of a unit of wine requires 30 units of labor and 15 units of land and the production of a unit of cheese requires 12 units of labor and 24 units of land. In other words, the unit labor requirements are given respectively as: aw = 30, aw = 15, a LC = 12, ac = 24. A.) Given the above information, which good is labor intensive? Which one is land intensive? B.) Suppose that the total amount of labor available in the country is 4,800 units while the total amount of land available is 7,200 units (L = 4,800 and 7 = 7,200). Graph the two resource constraints and highlight the country's production possibilities frontier putting the amount of wine produced (Qw) on the vertical axis and the amount of cheese (c) on the horizontal axis. Towards which good does the country's PPF stretch to? C.) If the unit prices for wine and cheese are $90/unit and $48/unit respectively, show that wages of labor (w) and rent (1) cannot respectively be $6 and $9 in a competitive economy. Hint. In a competitive economy with 2 factors of production and constant unit labor requirements, the following conditions must hold: Pc = acw+arcr =aw Wawr. Plug in the relevant values for the unit labor requirements and reduce the equations down. Then plug in relevant wage and rental rates and see if these equations hold. Describe your results. What if both the wage and rental rate were both equal to 1?
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