Question

Consider two neighboring island countries called Felicidad and Arcadia. They each have 4 million labor hours available per week that they can use to produce rye, jeans, or a combination of both. The following table shows the amount of rye or jeans that can be produced using 1 hour of labor.
Country Rye Jeans
(Bushels per hour of labor) (Pairs per hour of labor)
Felicidad 4 16
Arcadia 5 10

Initially, suppose Arcadia uses 1 million hours of labor per week to produce rye and 3 million hours per week to produce jeans while Felicidad uses 3 million hours of labor per week to produce rye and 1 million hours per week to produce jeans. Consequently, Felicidad produces 12 million bushels of rye and 16 million pairs of jeans, and Arcadia produces 5 million bushels of rye and 30 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of rye and jeans it produces.

Felicidad's opportunity cost of producing 1 bushel of rye is ________ of jeans, and Arcadia's opportunity cost of producing 1 bushel of rye is ________ of jeans. Therefore, ________ has a comparative advantage in the production of rye, and ________ has a comparative advantage in the production of jeans.

Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces rye will produce ________ million bushels per MONTH, and the country that produces jeans will produce ________ million pairs per MONTH.

Answer 1

Answer:

Felicidad: each bushel of rye cost 4 pairs of jeans

Arcadia: each bushel of rye cost 2 pair of jeans

As in comparison it takes less pair of the jean to produce a bushel of rye Arcadia has a comparative advantage in the production of rye

while Felicidad has it in the production of jeans.

Specialized economy:

Felicidad 16,000,000 pairs of jean

Arcadia 20,000,000 bushels of rye

Explanation:

The opportunity cost is the number of goods not produced as a result of the production choice.

For the bushel of rye, it will be the pairs of jeans.

For  Felicidad Island will be:

16 jeans / 4 bushel of rye = 4 jeans

each bushel of rye cost 4 pairs of jeans

For Arcadia Island will be:

10 pair of jeans / 5 bushels of rye = 2 jeans

each bushel of rye cost 2 pair of jeans

If they specialize

Felicidad 4 millions labor hours x 4 pairs per hour = 16,000,000 jeans

Arcadia 4 millions labor hours x 5 bushel per hour = 20,000,000 bushel