S. Klepper, Economics 73-100, Fall 2011

# Mini-test 1

Consider a country that produces two goods, food and shelter.  Suppose both goods are produced using only labor, the only productive resource of the country, and the country has 500 units of labor.  Assume that each unit of food can be produced with one unit of labor.  Assume that the first 200 units of shelter can be produced with one-half unit of labor, the next 200 can be produced with one unit of labor, and all subsequent units of shelter require two units of labor to produce.

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 maximum number of units of food the country can produce is 500.

_____2. The maximum number of units of shelter the country can produce is 400.

_____3. The opportunity cost of each of the first 100 units of food is the same.

_____4. The opportunity cost of each unit of food above 200 is twice as great as the opportunity cost of each of the first 200 units of food.

_____5. The opportunity cost of each of the first 200 units of shelter is half as great as the opportunity cost of each of the next 200 units of shelter.