L  =  10 Total available LABOR is 10 man-hours. K = 100 Total available  CAPITAL is 100 units. b  =  .5 half an hour of LABOR is needed to BAKE one loaf of BREAD c  =  1 one hour of LABOR is needed to WEAVE one yard of CLOTH d  =  8 8 units of CAPITAL  is needed to BAKE one loaf of BREAD e  =  6 6 units of CAPITAL  is needed to WEAVE one yard of CLOTH
 Suppose we want 6 loaves of BREAD. QB   =  6 How much CLOTH can we produce? QC  =   ? BAKING 6 loaves of BREAD takes 3 hours of LABOR. LB  =   b QB =  (.5) 6 = 3 7 hours remain for WEAVING CLOTH LC =  L - LB =  10 - 3 = 7 BAKING 6 loaves of BREAD requires 48 units of CAPITAL. KB  =   d QB =  (8) 6 = 48 52 units remain for WEAVING CLOTH. KC = K- KB = 100- 48 = 52 Iin 7 hours we can WEAVE at most 7 yards of CLOTH QCL  =  LC / c  =  7 / 1  = 7 With 52 units of CAPITAL we can WEAVE  at most 8.66 yards of CLOTH QCK = KC /e  = 52/6  = 8.66 Taking both LABOR and CAPITAL in consideration we cannot produce more than 7 yards of CLOTH. QC  = min( QCL, QCK ) = 7 10 units of CAPITAL remains unutilized. (QCK - QCL)6  =  10

 OK Economics was designed and it is maintained by Oldrich Kyn. To send me a message, please use one of the following addresses: okyn@bu.edu --- okyn@verizon.net This website contains the following sections: General  Economics: Economic Systems: Money and Banking: Past students: http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm Czech Republic Kyn’s Publications American education