Think of a society with three commodities-food, wood, and labor. It has four linear activities, described by the following matrix.
Activity 1 Activity 2 Activity 3 Activity 4
|
Food
|
5
|
7
|
-5
|
-3
|
|
Wood
|
-2
|
-6
|
12
|
10
|
|
Labor
|
-1
|
-1
|
-1
|
-1
|
The society has one unit of labor available.
(a) Plot the society's production possibility frontier for food and wood.
(b) Suppose the society consumes both food and wood and that all commodities are priced so that activities are operated so as to maximize pro?ts at those prices. If production is organized ef?ciently, what must the prices of food and wood be in terms of labor?