Two Factor Opportunity Set

up
down
two factors of productionLABOR and CAPITAL
two productsBREAD and CLOTH
two technologiesBAKING and WEAVING
Note that for each product, there is only one technology,  and both require the input of both factors of production. The technologies are assumed to be 'fixed coefficients',  i.e. requiring the constant quantity of input per each unit of output.
Notation:
up
down
variablesparameters
quantitiesunits:technical coefficients:units:
L  ... LABORman-hoursb ...LABOR - BREADhours per  one loaf
K ... CAPITALpiecesc ... LABOR - CLOTHhours per one yard
QB... BREADloavesd ...CAPITAL - BREADpieces per  one loaf
QC...CLOTHyardse ... CAPITAL - CLOTHpieces per one yard
Equations:
up
down
(1)LB  =   b QBLABOR needed for BAKING QB loaves of BREAD.
(2)LC   =   c QCLABOR needed for WEAVING QC yards of CLOTH.
(3)L >=  LB  +  LC
Sum of LABOR needed for BAKING and WEAVING
cannot exceed available man-hours of LABOR.
(4)KB  =   d QBCAPITAL needed for BAKING QB loaves of BREAD.
(5)KC   =   e QCCAPITAL  needed for WEAVING QC yards of CLOTH.
(6)K >=  KB  +  KC
Sum of CAPITAL needed for BAKING and WEAVING
cannot exceed available pieces of CAPITAL.

 

up

down

 

fakt2_title_anim_bez.gif (17341 bytes)

up

down

If we want 6 loaves of BREAD

we can produce at most 7 yards of CLOTH,
given the limited amount of LABOR   and CAPITAL
and existing technology of BAKING and WEAVING.

Note that in this case LABOR is fully utilized

but CAPITAL is not.

up

down

 

 

bread_cloth_

 

 

up

down

 

  TWO FACTOR PPF

updown

 

PPF_2fakt

 

 

 

Designed and maintained by Oldrich Kyn - Copyright 1997-2005.  All rights reserved. Copyrights of signed articles, graphics, sounds and programs is held by the original authors.


free hit counters
Nutrisystem Diet Coupons