Question

Suppose Greg and Joe can each spend their time producing hats or shirts. Greg can efficiently produce 10 hats in 2 hours, and he can efficiently produce 4 shirts in 2 hours. Joe can efficiently produce 60 hats in 8 hours, and he can efficiently produce 40 shirts in 8 hours. Use this information to fill in the following statements (round to the nearest hundredth if needed).

1.) If Joe has 24 hours available, and produces 30 shirts, he can efficiently produce_____ hats.

2.) Assuming he produces efficiently, the opportunity cost to Greg of producing 1 hat is _______ shirts.

3.) If Joe and Greg were to specialize and trade with each other, Greg should specialize in the production of ______

4.) Assuming he produces efficiently, the opportunity cost to Joe of producing 1 shirt is ____ hats.

Answer 1

1) Hours to produce 30 shirts = (30/40) x 8 = 6 hours
Hours left = 24 - 6 = 18 hours

Hats in 18 hours = (18/8) x 60 = 135

2) Greg hats per hour = 10/2 = 5
Greg shirts per hour = 4/2 = 2
Opportunity cost of 1 hat = 2/5 shirts

3)  Joe hats per hour = 60/8 = 7.5
Joe shirts per hour = 40/8 = 5
Opportunity cost of 1 hat = 5/7.5 shirts

Opportunity cost of hat is lower for Greg. So Greg should specialise in hats.

4) Joe hats per hour = 60/8 = 7.5
Joe shirts per hour = 40/8 = 5
Opportunity cost of shirt = 7.5/5 = 1.5 hats