Tom is a full-time lecturer at a private higher education institution and is considering a career in carpentry. He wishes to pursue a career in carpentry (a childhood dream) which he has studied part-time and is now equipped to take on clients. In his current position he earns a rate of $1000 per day and if he were to pursue a career in carpentry he would earn $800 per day. Due to the flexibility of the employment conditions at the higher education institution he works for, Tom can negotiate the number of days he works at and will receive a rate of remuneration based on the number of days worked.
1. Construct a production possibility frontier to illustrate Tom’s earnings potential between the two careers if initially he was not working as a carpenter, then he worked one week per month, then two, then three and finally four weeks per month (assuming only four weeks in a month).
In this case the production possibility frontier is a line, which goes through the points (20,000; 0) and (0; 16,000) if we assume 5 working days in a week, and it shows possible optimal combinations of work in carpentry or as a lecturer.