rvices. The boundary between what can and cannot be produced is referred to as the production possibility frontier (PPF). Using Microeconomic ModelsUnderstanding the PPF as applied to real life is critically important. To make that concept easier to grasp a model economy can be devised that, while simpler than real life situations, provides enough accurate information to draw viable conclusions and make feasible predictions.To build this model, features essential to understanding the real economy must be incorporated, but copious details are eliminated. The model will be simplified by establishing three important criteria:1. Everything in this model that is produced is also consumed, stabilizing capital resources so that they neither grow nor shrink.2. There are only two goods rice and cloth.3. There is a single individual involved with this economy, Joe. Joes setting is a deserted island, with no outside contact.Joe uses all the resources available to him to produce rice and cloth. It requires Joe to labor 10 hours a day. The amount of cloth and rice produced relies on how many hours are devoted to the activity.producing them. If Joe does no work, nothing is produced. To produce six pounds of rice in a month, Joe must work two hours a day. Devoting more hours to rice increases monthly output, but the return rate diminishes as Joe has to use increasingly unsuitable land in that production. Initially, Joe plants in fertile wet land. As the best quality land is put into production, remaining available land becomes drier and less productive. Eventually, all workable land is used and time and effort must now be devoted to reconditioning other types of land. To produce cloth, Joe gathers wool from sheep on the island. As he devotes more hours to gathering wool and weaving fiber, cloth output increases. If Joe devotes all his time to raising rice, he can produce twenty pounds of corn a month. He cannot, however, produce an...
