Question

Initially, suppose Bellissima uses 1 million hours of labor to produce rye and 3 million hours to produce jeans, while Dolorium uses 3 million hours of labor to produce rye and 1 million hours to produce jeans. Consequently, Dolorium produces 32 million pairs of jeans and 24 million bushels of rye, and Bellissima produces 72 million pairs of jeans and 12 million bushels of rye. Assume there are no other countries willing to trade goods, so in the absence of trade between these two countries, each country consumes the amount of rye and jeans it produces.
Dolorium's opportunity cost of producing one bushel of rye is_________ of jeans, and Bellissima's opportunity cost of producing one bushel of rye is _______ of jeans. Therefore, ________ has a comparative advantage in the production of rye and ________ has a comparative advantage in the production of jeans.
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces rye will produce_________ bushels, and the country that produces jeans will produce _____ pairs. In the table at the end of this problem, enter each country's production decision on the second row (marked "Production").

Answer 1

Answer:

Bellisima's opportunity cost:  

Production of rye per million hours of labor = 24 / 12 = 2 pairs of jeans

Production of jeans per million hours of labor = 12 / 24 = 0.5 bushels of rye

Dolorium's opportunity cost:  

Production of rye per million hours of labor = 32 / 8 = 4 pairs of jeans

Production of jeans per million hours of labor = 8 / 32 = 0.25 bushels of rye

Dolorium has a comparative advantage in the production of jeans while Bellisima has a comparative advantage in the production of rye.

If both countries specialize:

Bellisima will produce 48 million bushels of rye.

Dolorium will produce 128 million pairs of jeans.

Total production of rye has increased by 12 million bushels.

Total production of jeans has increased by 24 million pairs.