Question

An economy has two workers, Anne and Bill. Per day of work, Anne can pick 100 apples or 250 bananas, and Bill can pick 80 apples or 80 bananas. Anne and Bill each work 200 days per year.

a. Anne's opportunity cost of picking one more apple is (Click to select)0.4 apples250 bananas2.5 bananas100 apples.

Bill's opportunity cost of picking one more apple is (Click to select)80 apples80 bananas1 banana1 apple.

(Click to select)BillAnneNeither has a comparative advantage in apple picking.

(Click to select)AnneBillNeither has an absolute advantage in apple picking.

b. Assuming that only one fruit is picked in this economy, then the maximum number of each type of fruit that can picked annually is either  apples or  bananas.

c. If each worker fully specializes according to his or her comparative advantage, the maximum number of apples that can be picked annually is , and the maximum number of bananas is .

Answer 1

a).

Here Anne can pick 100 apples or 250 bananas per day, => Anne’s opportunity cost of picking one more apple is “250/100 = 2.5”, => if Anne want to pick one more apple then have to scarify 2.5 bananas.

Bill can pick 80 apples or 80 bananas per day, => Bill’s opportunity cost of picking one more apple is “80/80 = 1”, => if Bill want to pick one more apple then have to scarify 1 bananas.

So, Bill having lower opportunity cost of producing apple, => Bill have the comparative advantage in the production of apple. In absolute amount Anne can produce more apple than Bill, => Anne have the absolute advantage in the production of apple.

b).

Let’s assume only apple will be produced, => total apple production is given by, => A = 100*200 + 80*200 = 36,000 units. Now, assume only banana will be produced, => total banana production is given by, => B = 250*200 + 80*200 = 66,000 units.

So, the annual production of fruit is either 36,000 units of apple or 66,000 units of bananas.

c).

Here Bill having comparative advantage in the production apple and Anne having the comparative advantage in the production of banana, => total apple production is “80*200 = 16,000 units” and total banana production is “250*200 = 50,000 units”.