Question

8. In an island economy, George has 40 units of labor which he can use to produce goods x and y. The production functions are x = 0.25Lx, and y = 0.5Ly. What is the slope of the PPF, if x is on the horizontal axis?

(a.) -2

(b.) -3/2

(c.) -0.5

(d.) -0.25

Answer 1

Answer 8

The correct answer is (a) -2

PPF shows combination of x and y that can be produced when resources are used fully.

George has 40 units of labor => Lx +Ly = 40 => Lx = 40 - Ly

x = 0.25Lx and y = 0.5Ly => Ly = y/0.5 = 2y

=> x = 0.25Lx = 0.25(40 - Ly) = 0.25(40 - 2y)

=> 4x + 2y = 40

=> y = (1/2)(40 - 4x)

=> y = 20 - 2x ------------------ Equation of PPF

As it is given that x is on horizontal axis so slope of PPF = dy/dx

y = 20 - 2x => dy/dx = -2

Thus, Slope of the PPF = -2

Hence, the correct answer is (a) -2