Oliver's PPC crosses the x-axis at (3,0) and the y-axis at (0,3). Claire's PPC crosses the...

Oliver's PPC crosses the x-axis at (3,0) and the y-axis at (0,3). Claire's PPC crosses the x-axis at (6,0) and the y-axis at (0,12). Group of answer choices

Oliver has a comparative advantage in producing the good represented on the x-axis.

Claire has nothing to gain to trade with Oliver. Claire has an absolute advantage in both goods.

The opportunity cost of producing the good on the x-axis is greater for Oliver than for Claire.

Expert Solution

In case of Oliver, PPC crosses x-axis at (3,0) and y-axis at (0,3).

So, Maximum production of good shown on x=3

Maximum production of good shown on y=3

In case of Claire, PPC crosses x-axis at (6,0) and y-axis at (12,0).

So,

Maximum production of good shown on x=6

Maximum production of good shown on y=12

Clearly Claire has absolute advantage in production of both goods as it can produce more as compared to Olver.

Opportunity cost of good shown on x-axis in cases of Oliver=3/3=1 unit of y

Opportunity cost of good shown on x-axis in cases of Claire=12/6=2 unit of y

Oliver has a lower opportnuity cost in case of good on x. It means that Oliver has a comparative advantage in producing good shown on x-axis.

Trade will be beneficial if specialization is done on the basis of comparative advantage.

So, correct option is

Oliver has a comparative advantage in producing the good represented on the x-axis.

Rahul Sunny answered 7 months ago

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