Question

Suppose that an economy has 1,600 units of capital and 1,000 workers. This economy produces computers and shoes. Computer production requires four units of capital per worker and shirt production requires one unit of capital per worker.

Solve for the amount of labor and capital used in the computer industry

Answer 1

Given,

Total Capital= 1,600 units

Total labour/workers= 1,000 workers

Two goods produced in the economy are Computer and Shirts.

Thus, KC + KS = 1600 ..........Equation 1

LC + LS = 1000 ...........Equation 2

where, KC= Capital used in producing computer

KS= Capital used in producing shirts

LC= Labour used in producing computer

LS= Labour used in producing shirts

Also, KC = 4 x LC and KS = 1 x LS (given)

Putting the value of KC and KS in Equation 1,

4LC + 1LS = 1600

From Equation 2, LS = 1000 - LC

4LC + 1000 - LC = 1600

3LC = 600

LC = 200

Thus, KC = 4 x 200 = 800

Answer) The labour required in computer industry is 200 workers and the capital required in computer industry is 800 units.