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Example on Production Possibilities in Economics

Ques. In a country, there are three firms, firm A, firm B and firm C, each producing chairs and tables. All firms run their production for 8 hours a day. In 1 hour, firm A can produce either 1 chair or 2 tables, firm B can produce either 2 chairs or 1 table, and firm C can produce either 1 chair or 1 table. Find the total production of chairs and tables when

a) All three firms spend all their time in producing chairs.

b) All three firms spend all their time in producing tables.

c) All three firms spend exactly half their time on the production of each good.

d) Firm A spends all its time in producing tables, firm B spends all its time in producing chairs, and firm C spends half of its time on producing each good.

Ans. This is a questing relating to production possibilities of different goods in an economy.

a) In the first case all the three firms are allocating all their time (i.e., 8 hours) in producing chairs and none on tables, therefore, the production of tables is 0. So, the production of chairs is equal to

Total chairs produced by firm A + Total chairs produced by firm B + Total chairs produced by firm C

Total chairs produced by firm A = 12 (4 x 1 + 4 x 2)

Total chairs produced by firm B = 12 (4 x 2 + 4 x 1)

Total chairs produced by firm C = 8 (4 x 1 +4 x 1)

                                                  = 32 chairs

So, the total production of chairs is 32, production of tables is 0

b) In this case, all the three firms are allocating all their time (i.e., 8 hours) in producing tables and none on chairs, therefore, the production of chairs is 0. So, the production of tables is equal to

Total tables produced by firm A + Total tables produced by firm B + Total tables produced by firm C

Total tables produced by firm A = 16 (8 x 2)

Total tables produced by firm B = 8 (8 x 1)

Total tables produced by firm C = 8 (8 x 1)

                                                  = 32 tables

So, the total production of tables is 32, production of chairs is 0.

c) In this case all firms spend exactly half their time on producing each good i.e., 4 hours each on the production of chairs and tables. So, the production of chairs and tables is equal to

Total chairs produced by firm A = 4 ( 4 x 1)

Total chairs produced by firm B = 8 (4 x 2)

Total chairs produced by firm C = 4 (4 x 1)

                                                    = 16

Total tables produced by firm A = 8 (4 x 2)

Total tables produced by firm B = 4 (4 x 1)

Total tables produced by firm C = 4 (4 x 1)

                                                     = 16

Total Production of chairs = 16

Total Production of tables = 16

d) In this case firms are allocating different time from each other in the production of chairs and tables. So, the production of chairs and tables is equal to

Total chairs produced by firm A = 0

Total chairs produced by firm B = 16 (8 x 2)

Total chairs produced by firm C = 4 (4 x 1)

                                                    = 20

Total tables produced by firm A = 16 (8 x 2)

Total tables produced by firm B = 0

Total tables produced by firm C = 4 (4 x 1)

                                                     = 20

Total Production of chairs = 20

Total Production of tables = 20

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