1- Four individuals employed by a business that produces computers and software.

Question

1- Four individuals employed by a business that produces computers and software. The computers require assembly, and the software requires programming of computer code. Use the following information to construct a production possibilities frontier for this company:

    Employee Computers                 Code

A 10                    12.0

B 12                    14

C 8                     12.0

D 15                     10.0

If all employees are assembling computers and you—as the manager—would have to transfer employees to writing code, decide who to transfer first, second, third, and last. Decide which employee has comparative advantage in the production of computers and code.

Hint: The production possibilities frontier assumes all four workers are producing either computers or code, or some combination of both. Employee A can either produce 10 computers or write 12 lines of code in an eight-hour day. Start with all employees writing code (48 and 0 computers assembled) or all employees assembling computers (45 and 0 code written). The production possibilities frontier should be based on the law of increasing opportunity cost. (p. 30) The marginal rate of transformation should be increasing. The marginal rate of transformation for computers assembled for employee A is 12 divided by 10.

Explanation / Answer

Answer:

Production Possibilities Frontier: It is the Curve that represents all possible outputs for the given 2 sets of data. It is assumed that all inputs are utilized effectively.

Law of Increasing Operational Cost: It states that when all the component of a production cycle are at maximum efficiency then the cost of production will also be more than average.

The marginal rate of transformation for computers assemply for,

Employee A - 1.200

Employee B - 1.167

Employee C - 1.500

Employer D - 0.667

The marginal rate of transformation for coding software for,

Employee A - 0.833

Employee B - 0.857

Employee C - 0.667

Employer D - 1.500

So, transfer of employees to writing code is based on the rate of transformation is,

First - Employee C

Second - Employee A

Third - Employee B

Fourth & Last - Employee D

Employees C&D has comparative advantage as both the rate of transformation is inversely proportional.

Thanks.

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