Country A can build 250 tractors and 50 ships if it splits time evenly during a...

Country A can build 250 tractors and 50 ships if it splits time evenly during a year.

Country B can build 100 tractors and 100 ships if it splits time evenly during the same year.

If the term of trade 1ship = 2 tractors, country A wants to have 100 ships how many tractors will it have at the end of the year if it spends 100% of the time to build tractors? Show calculation. (10 points)

Solutions

Expert Solution

Country A can build 250 tractors and 50 ships if it splits time evenly during a year.

This implies that if Country A can devote its entire time to build tractors, it can build a maximum of 500 tractors and if it devotes its entire time to build ships, it can build a maximum of 100 ships.

Country A spends 100% of the time to build tractors.

So, Country A will build 500 tractors.

Country B can build 100 tractors and 100 ships if it splits time evenly during a year.

This implies that if Country B can devote its entire time to build tractors, it can build a maximum of 200 tractors and if it devotes its entire time to build ships, it can build a maximum of 200 ships.

Country B will spend its entire time to build ships and would produce 200 ships.

The terms of trade is 1 ship is exchanged for 2 tractors.

Country A wants 100 ships.

This means if it wants to have 100 ships, it have to provide Country B with 200 tractors.

Country A can produce a total of 500 tractors, if it gives 200 tractors to Country B then it is left with 300 tractors.

So,

Country A would have 300 tractors at the end of the year.

Rahul Sunny answered 1 year ago

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