Question

Suppose that a worker in cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in oatland can grow either 5 bushels of corn or 50 bushels of oats per year. there are 20 workers in cornland and 20 workers in oatland. if the two countries do not trade, cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while oatland will produce and consume 60 bushels of corn and 400 bushels of oats. if each country made the decision to specialize in producing the good in which it has a comparative advantage, then the combined yearly output of the two countries would increase by

Answer 1

Answer: Total output increase by 840 bushels.

Explanation: Opportunity cost of corn in Cornland = 10/40 = 0.25 bushels of oats  

Opportunity cost of oats in Cornland = 40/10 = 4 bushels of corn

Opportunity cost of corn in Oatland= 50/5 = 10 bushels of oats

Opportunity cost of oats in Oatland = 5/50 = 1/10 = 0.1 bushels of corn  

Opportunity cost of Corn is lower for Cornland. While opportunity cost of oats is lower in Oatland.  

Thus, Cornland will produce all corns and Oatland will produce all oats.  

Cornland produces 20*40 = 800 bushels of corn

Oatland produces 20*50= 1000 bushels of oats

Thus total output is 1800 bushels per year. While, earlier it was 460 bushels of corn and 500 bushels of wheat. Total output is 500+460 = 960 bushels per year.  

Thus, output increased by 840 bushels.