Quidpro, a food and beverage company based in Germany, gets most of its sales from outside its home country. Its employees are s
1 answer:
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Explanation:
Iowa's opportunity cost of producing 1 bushel of wheat is
= 3 bushels of corn
Nebraska's opportunity cost of producing 1 bushel of wheat is
=
= 0.33 bushels of corn
Iowa's opportunity cost of producing 1 bushel of corn is
=
= 0.33 bushels of wheat
Nebraska the opportunity cost of producing 1 bushel of corn is
= 3 bushels of wheat
Nebraska has a comparative advantage in producing wheat and Iowa has a comparative advantage in producing corn.
If both countries start to produce the commodity they have a comparative advantage in producing, both will gain from trade.
Iowa can give up producing 20 million bushels of wheat and instead produce additional
= 20 × 3 = 60 million bushels of corn
Similarly, Nebraska can give up producing 20 million bushels of corn and instead produce additional
= 20 × 3 = 60 million bushels of wheat
So now Iowa can produce 180 million bushels of corn no wheat and Nebraska can produce 180 million bushels of wheat and no corn.
If they trade, Nebraska can trade 120 million bushels of wheat for 60 bushels of corn. With this trade, Nebraska will end up with 120 million bushels of corn and 60 million bushels of wheat and Iowa will end up with 60 million bushels of corn and 120 million bushels of wheat.