Answer to Question #173167 in Microeconomics for farha

Question

1.     Consider the world consisting of two countries, Country A and Country B. Each country has 840 units of labour, the only input. In Country A, it takes 12 unit of labour to produce one unit of good X and 7 units of labour to produce one unit of good Y. In Country B, it takes 6 units of labour to produce one unit of good X and 14 units of labour to produce one unit of good Y.

a.      What is the opportunity cost of producing a unit of good X in Country A? Why? 

b.      In autarky, what would be the relative price of good X in Country A? In Country B? Why?

c.      What is the Country A’s marginal product of labour in good X and in good Y, and what is the Country B’s marginal product of labour in good X and in good Y?

e.     How big is the economic cost of the laws that restrict specialisation and trade between Country A and Country B?

Answer 1

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