The land of Oz produces dreams (denoted by x ) and wishes (denoted by y ). The production possibilities function in the current year is given by: y=2L y = 2L² + 3K² - 0.4x²
where K is units of capital, and L is units of labor. Assume the current stock of resources is L=20 and K =10. The marginal cost of x is given by the slope of the production possibilities frontier, PPF, at a given point and is a function of x. Notice the slope of this nonlinear function is not constant. In this case, the slope, i'.y/i'.x, equals −0.8x (or, the first derivative dy/dx equals −0.8x.) a. Draw Oz's PPF and state wherher resources are perfectly substituable or not. Explain your answer
b. How would the immigration of 10 munchkins, i.e., 10 units of labor, affect the PPF equation? Show graphically on the same diagram and explain. c. What is the marginal cost of x when x=20 ? What is the marginal cost of y when x=20 ?