Question

In one hour. Sue can produce 70 caps or 21 jackets and Tessa can produce 50 caps or 25 jackets. Sue's opportunity cost of producing a cap is jackets and Tessa's opportunity cost of producing a cap is has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage. 0.3; 0.50; Tessa; Tessa gains hut Sue loses 3.3; 2.0; Tessa; both Sue and Tessa gain 0.3; 0.50; Sue; both Sue and Tessa gain 3.3; 2.0; Sue; Sue loses but Tessa gains 0.3; 0.50; Sue; Tessa gains but Sue loses jackets.

Answer 1

Answer:

both Sue and Tessa gain 0.3; 0.50

Explanation:

Sue's production possibilities frontier:

• 70 caps
• 21 jackets

Sue's opportunity cost:

• opportunity cost of producing caps = 21 / 70 = 0.3 jackets
• opportunity cost of producing jackets = 70/21 = 3.33 caps

Tessa's production possibilities frontier:

• 50 caps
• 25 jackets

Tessa's opportunity cost:

• opportunity cost of producing caps = 25 / 50 = 0.5 jackets
• opportunity cost of producing jackets = 50/25 = 2 caps

Sue should produce caps and Tessa jackets:

total production = 70 caps (Sue) + 25 jackets (Tessa), if they trade they will both win because each specialized in producing the good in which they have a comparative advantage (lower opportunity costs). If Sue traded and received 21 jackets, she would still have 28 caps left. If Tessa traded and received 50 caps, she would still have 10 jackets left.