Simple Opportunity Set

This is an example of a most simple economic decision under constraint of limited resource. It involves:

single factor of production

LABOR

two products

BREAD and CLOTH

two technologies

BAKING and WEAVING

Note that for each product, there is only one technology,  and both require the input of the same factor of production. The technologies are assumed to be 'fixed coefficients',  i.e. requiring the constant quantity of input per each unit of output.

Notation:

variables

parameters

quantities

units:

technical coefficients:

units:

L  ... LABOR

man-hours

b ...LABOR - - BREAD

hours per  one loaf

QB... BREAD

loaves

c ... LABOR - CLOTH

hours per one yard

QC...CLOTH

yards

 

 

Equations:

(1)

LB  =   b QB

LABOR needed for BAKING QB loaves of BREAD.

(2)

LC   =   c QC

LABOR 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.