Question

6. Determine the Comparative advantage for the countries below given the opportunity cost of producing the two goods. Assume each country has 20 workers. Which country should specialize in Airplanes and which should specialize in cellphones. Graph the production possibility and consumption possibility of frontiers using Excel. Assume that the world trade ratio is: Cellphones/Airplanes = 5/1

The maximum production is :

	USA	China
Cellphones	100	20
Airplanes	10	5

Answer 1

Given,

	USA	China
Cellphones	100	20
Airplanes	10	5

Now, calculating the opportunity cost

In USA, 100 Cellphone = 10 Airplane

In China, 20 Cellphone = 5 Airplane

	1 unit of Cellphone	1 unit of Airplane
USA	0.10 unit of Airplane	10 unit of Cellphone
China	0.25 unit of Airplane	4 unit of Cellphone

The opportunity cost of producing 1 unit of cellphone in USA is less than that of China. Therefore, USA has comparative advantage in production of Cellphone.

USA should specialize in producing Cellphone. Refer the attached picture for PPF of USA.

Similarly, the opportunity cost to producing Airplane is low in China. Therefore, China has comparative advantage in producing Airplane.

China should specialize in producing Airplane. Refer the attached picture for PPF of china.

I am really sorry for the graph because the production per unit of labor is not mentioned. The table is regarding the maximum production is given. But the per unit labor productivity is not given. Please understand my limitation. Kindly contact if having any query will be obliged to you for your generous support. Please help. Thank you.