Question

P_C/P_W < a_LC/a_LW

_{What the reasoning/meaning behind the idea on how the economy will specialize in the production of cheese if the relative price of cheeses exceeds its opportunity cost?}

Answer 1

So, here PC is the price of cheese and lets assume PW is another good, wine and PW is the price of wine.

aLC is the hours taken per person to produce one unit of cheese and aLW is the hours taken per person to produce one unit of wine.

PC/PW is the relative price of cheese to the relative price of wine and aLC/aLW is the opportunity cost of producing cheese to the production of wine.

In your question, PC/PW < aLC/aLW, which means that the opportunity cost of producing cheese is greater than the relative price of cheese to the relative price of wine, then workers will get higher wages in the production of wine. When wages of one sector is higher than the wages of another sector, all the workers will want to work where there are higher wages, in this case, which is the wine industry. So, in this case, the economy will specialize in the wine industry and they will not specialize in the cheese industry.