Question
The labour force of ten persons in the tiny economy of Jamrock can produce only Rum and Coffee. Each worker is capable of producing either
The labour force of ten persons in the tiny economy of Jamrock can produce only Rum and Coffee. Each worker is capable of producing either 3 gallons of rum or one pound of coffee per day. [2 points each]
a) Sketch the economy’s production possibilities frontier.
b) Explain what it is showing.
c) Is the combination of 7 gallons of rum and 7 pounds of coffee attainable? Is it efficient? What about 15 gallons of rum and 10 pounds of coffee?
d) Suppose the neighbouring island of Cube-land is willing to sell each pound of its coffee for 11⁄2 gallons of rum. Sketch Jamrock’s consumption possibilities.
e) Given the option of trading with Cube-land, what should Jamrock produce and trade in order to attain the consumption of 15 gallons of rum and 10 pounds of coffee?
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