Answer to Question #41459 in Microeconomics for greg

Question

Consider 2 neighboring countires called Acadia and Euphoria. They each have 4 million labor hours per month that they can use to produce corn, jeans, or a combination of both. Euphoria produces 4 bushels of corn per hour and 16 pairs of jeans. Acadia produces 5 bushels of corn per hour and 10 pairs of jeans. Euphoria produces 12 million bushels of corn and 16 million pairs of jeans and Acadia produces 5 million bushels of corn and 30 million pairs of jeans.
Euphoria's opportunity cost of producing one bushel of corn is ________ of jeans and Acadia's cost of producing one bushel of corn is _______ of jeans. Therefore, ______ has the comparative advantage of producing corn, and ________ has the comparative advantage of producing jeans.
Suppose that each country specializes in the production of a good in which it has a comparative advantage. In this case the country that produces corn will produce __________ bushels per month and the country that produces jeans will produce ___________pairs per month.

Answer 1

Consider 2 neighboring countires called Acadia and Euphoria. They each have 4 million labor hours per month that they can use to produce corn, jeans, or a combination of both. Euphoria produces 4 bushels of corn per hour and 16 pairs of jeans. Acadia produces 5 bushels of corn per hour and 10 pairs of jeans. Euphoria produces 12 million bushels of corn and 16 million pairs of jeans and Acadia produces 5 million bushels of corn and 30 million pairs of jeans.

Euphoria's opportunity cost of producing one bushel of corn is 16/4 = 4 pairs of jeans and Acadia's cost of producing one bushel of corn is 10/5 = 2 pairs of jeans. Therefore, Acadia has the comparative advantage of producing corn, and Euphoria has the comparative advantage of producing jeans.

Suppose that each country specializes in the production of a good in which it has a comparative advantage. In this case the country that produces corn will produce 4 million*5 = 20 million bushels per month and the country that produces jeans will produce 4 million*16 = 56 million pairs per month.