Question

Assume that Mexico and Brazil are the only two countries in the world and they produce soybeans and avocados.

Mexico 150 million hours of labor per month

5 hours to produce 1 pound of soybeans

3 hours to produce 1 pound of avocados

Brazil 300 million hours of labor per month

1 hours to produce 1 pound of soybeans

3 hours to produce 1 pound of avocados

For each good, state and explain which country has the comparative advantage.

Answer 1

Mexico

5 hours of labor can produce 1 pound of soybeans

   150 million hours of labor can produce (1 / 5) * 150 million pounds of soybeans per month.

Or, 150 million hours of labor can produce 30 million pounds of soybeans per month.

3 hours of labor can produce 1 pound of avocados

   150 million hours of labor can produce (1 / 3) * 150 million pounds of avocadoes per month.

Or, 150 million hours of labor can produce 50 million pounds of avocadoes per month.

Brazil

1 hour of labor can produce 1 pound of soybeans

300 million hours of labor can produce (1 * 300) million pounds of soybeans per month

Or, 300 million hours of labor can produce 300 million pounds of soybeans per month.

3 hours of labor can produce 1 pound of avocados

  300 million hours of labor can produce (1/3) * 300 million pounds of avocadoes per month

Or, 300 million hours of labor can produce 100 million pounds of avocadoes per month.

Country	Soybean (million pounds/month)	Avocado (million pounds/month)	Opportunity cost of Soybean	Opportunity cost of Avocado
Mexico	30	50	50 /30 = 5/3	30 / 50 = 3/5
Brazil	300	100	100 / 300 = 1/3	300 /100 = 3

From the above table, we see that the opportunity cost of producing Soybean is lower in Brazil(1/3) than in Mexico(5/3). The opportunity cost of producing Avocado is lower in Mexico(3/5) than in Brazil(3).

Thus, we conclude that, Brazil has comparative advantage in the production of Soybean, and Mexico has comparative advantage in the production of Avocado.