S.
Klepper, Economics 73-100, Fall
2009
Consider a country that has one productive resource, labor, which it uses to produce two goods, food and clothing. Each unit of food can be produced with one unit of labor. The first unit of clothing can also be produced with one unit of labor, but as more units of clothing are produced, a greater amount of labor is required to produce each additional unit of clothing.
Suppose a new technology is discovered that reduces by 50% the amount of labor required to produce each unit of clothing (but has no impact on the amount of labor required to produce each unit of food).
Which
of the following statements concerning this situation are correct? Mark true for a correct answer and false for
an incorrect one and provide explanations for each of your answers.
_____1. The technological change doubles the maximum number of units of clothing the country can produce.
_____2. The technological change reduces the opportunity cost of each unit of food.
_____3. After the technological change, the opportunity cost of each unit of food rises as additional units of food are produced.
_____4. The technological change reduces by 50% the opportunity cost of each unit of clothing that could be produced before the technological change.
_____5. Before and after the technological change, the production possibilities curve of the country was concave shaped.