S. Klepper, Economics 73-100, Fall 2011

# Solution to Quiz 1

If each unit of food requires one unit of labor and the country has 400 units of labor, then the maximum number of units of food it can produce is 400.  In contrast, if the first unit of clothing requires one unit of labor but subsequent units of clothing require more than one unit of labor, then the maximum number of units of clothing the country can produce is less than 400.

Regarding opportunity cost, each successive unit of clothing requires a greater and greater number of units of labor to produce it.  The labor must be transferred from food production.  Since each unit of labor produces one unit of food no matter how many units of food are produced, the number of units of food sacrificed as each successive unit of clothing is produced rises.  Therefore, the opportunity cost of each successive unit of clothing rises as more units of clothing are produced.  The same is also true for food.  To see this, note that the production of each unit of food requires one unit of labor.  Therefore, to produce each additional unit of food, one unit of labor must be transferred from clothing production.  As more units of labor are transferred from clothing production and less units of clothing are produced, the amount of clothing sacrificed from the transfer of each unit of labor increases because less units of labor are required to produce each unit of clothing as less clothing is produced.  Therefore, as more units of food are produced, the amount of clothing sacrificed to produce each successive unit of food rises.  Consequently, the opportunity cost of each unit of food increases as more units of food are produced.  With opportunity cost increasing for both food and clothing, the production possibilities curve of the country must be concave shaped.

Based on this description, the answers to the individual questions are:

_____1. True

_____2. False

_____3. False—it rises as more units of food are produced.

_____4. True

_____5. True