Consider the following Country with 100 inhabitants producing wheat and cloths. The Marginal Products of Labor (MPL) in the country are as follows.

a.          Draw the Production possibility frontier (PPF) using following information.

                                                                                             i.        Total wheat production if all are employed in wheat

                                                                                          ii.        Total cloth production if all are employed in cloths

                                                                                       iii.        Production of wheat and cloths if half of the population is in wheat and the other half in cloths.

b.         Why does the PPF take the form of a straight line?

c.          What is the slope of the PPF in terms of MPLs?

d.         Derive a relationship between ratio of MPLs and ratio of Prices of Wheat and Cloths.

e.          If wheat price is $1, what is the nominal wage?

f.            What is the price of cloths?

g.          To determine the production and consumption of wheat and cloths in the country what more information do you require?

h.         Use a diagram to show production and consumption of wheat and cloths in the country.

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