Question

the following table provides labour productivity for two individuals ann and bob in the production of coconuts and fish.

coconut fish

Ann 6 12

Bob 9 18

a. if both individuals allocate their resources evenly in the production of each good, what the total production of each goods

b. which individuals has an absolute advantage in what good?

C. What is Ann's opportunity cost of producing coconut ? fish?

d. What is Bob's opportunity cost of producing coconut ? fish?

e. who has comparative advantage in producing coconut ? fish?

f. if both individuals specialized in the production of the good in which they have a comparative advantage in, what will be the new total production?

g. what are the gains from specialization?

Answer 1

[FIRST FIVE PARTS]

a. Each of them allocates their resources evenly in both goods.

So ann produces (6/2) = 3 coconut and (12/2) = 6 fish.

So, Bob will produce (9/2) = 4.5 coconut and (18/2) = 9 fish.

So, total production

Coconut = 3+4.5 = 7

Fish = 6+9 = 15

So, 7 coconuts and 15 fish are produced.

b. Bob has absolute advantage in production of both goods.

Given the labor productivity, Bob can produce 9 coconut in a given time whereas ann can produce only 6 coconut. So, bob has absolute advantage in coconut.

Bob can produce 18 fish in a given time and ann can produce only 12 fish. So bob has absolute advantage in fish also.

c. Opportunity cost of ann of producing

Coconut: (12/6) = 2 fish

Fish: (6/12) = 0.5 coconut

d. Opportunity cost for Bob of producing

Coconut: (18/9) = 2 fish

Fish: (9/18) = 0.5 coconut

e. No one has a comparative advantage in neither good. From earlier parts c and d, we can see that each person has equal opportunity costs of producing each good.

Both persons have same opportunity cost.

A person that has lower opportunity cost of producing a good is said to have comparitive advantage in that good.

Since both have equal opportunity costs, no has a comparative advantage in either good.