Question

If the fictitious country of Islandia puts all of its production resources into fish, it can produce 60 units of fish. If it puts all of its production resources into coconuts, it can produce 30 units of coconuts. If the fictitious country of Mountania puts all of its production resources into fish, it can produce 15 units of fish. If it puts all of its production resources into coconuts, it can produce 45 units of coconuts. Assume that both countries have constant cost functions for both products. nstructions: Round your answers to 2 decimal places. a. What is the opportunity cost of producing 1 unit of fish in Islandia? unit(s) of coconuts b. What is the opportunity cost of producing 1 unit of coconuts in Islandia? unit(s) of fisih c. What is the opportunity cost of producing 1 unit of fish in Mountania? unit(s) of coconuts d. What is the opportunity cost of producing 1 unit of coconuts in Mountania? unitis) of fish e. (Click to select)has a comparative advantage in the production of fish. ck to select) has a comparative advantage in the production of coconuts. f. What will be the terms of trade for fish? Betweena andunits) of coconuts . What will be the terms of trade for coconuts? and?

Answer 1

Answer:

1.5 unit of Coconut and 0.66 unit of fish. Mountania gets 0.66 fish per 1.5 unit of coconut it gives to Islandia.

Explanation:

a. What is the opportunity cost of producing 1 unit of fish in Islandia? unit(s) of coconuts.

it can produce 60 units of fish or 30 units of coconuts

Therefore 1 unit of fish has opportunity cost of 30 coconuts/60 fish = 0.5 unit of coconuts.

b. What is the opportunity cost of producing 1 unit of coconuts in Islandia? unit(s) of fish  

it can produce 60 units of fish or 30 units of coconuts

Therefore 1 unit of coconut has opportunity cost of 60 fish/30 coconut = 2 unit of fish.

c. What is the opportunity cost of producing 1 unit of fish in Mountania? unit(s) of coconuts  

it can produce 15 units of fish or 45 units of coconuts.

Therefore 1 unit of fish has opportunity cost of 45 coconuts/15 fish = 3 units of coconut

d. What is the opportunity cost of producing 1 unit of coconuts in Mountania? unitis) of fish  

it can produce 15 units of fish or 45 units of coconuts.

Therefore 1 unit of coconut has opportunity cost of 15 fish/45 coconut = 0.33 unit of fish

e. (Click to select)has a comparative advantage in the production of fish. ck to select) has a comparative advantage in the production of coconuts.  

Islandia can produce 60 units of fish or 30 units of coconuts and Mountania can produce 15 units of fish or 45 units of coconuts.

Therefore Islandia has comparative advantage in fish production because it can produce 45 more fish given same resources

f. What will be the terms of trade for fish? Betweena andunits) of coconuts .  

1.5 unit of Coconut can be derived as a basis for exchange when the opportunity cost of fish for mountania (3 coconut) is multiplied by the opportunity cost of fish for Islandia (0.5 coconut). At 1.5 units of coconut per fish, both countries will be happy because it is higher than the benefit Islandia would have gotten and lower than the cost that mountania would have borne.

What will be the terms of trade for coconuts?  

0.66 unit of fish can be derived as a basis for exchange when the opportunity cost of coconut for Islandia (2 fish) is multiplied by the opportunity cost of coconut in Mountania (0.33 coconut). At 0.66 units of fish per coconut, both countries will be happy because it is lower than the cost Islandia would have borne and higher than the benefit that Mountania would have enjoyed.