Question

Help with D and E

PS 1 chap 1 and 2 (1) Word Cla Layout References Mailings Review View Help Faxit POF A A Aa a-ッ.A.圈ㄧ S-3..ㅡ .. 11Normal INo Spac Heading 1 Heading 2 Title Subtitle Su Paragraph y to be installed, but first we need to close some apps. Update now e. Positive because it's a fact that can be tested 3. Central City and Star City are neighboring cities that produce cups of coffee and arrows according to the following Star City 60 80 Coffee Central 100 40 a. Which city has absolute advantage in production of coffee? Arrows? Coffee Central City Arrows Star City Which city should produce coffee? Explain how you know. Central City should because of lower opportunity cost Which city should produce arrows? Explain how you know. Star city because of lower opportunity cost Suppose that before trade, Central City is producing and consuming 50 cups of b. c. d. Assume that the trading ratio is 3 arrows per cup of coffee. If Central City specializes in its good of comparative advantage and produces 20 more units of its good of comparative advantage, how much of each good can Central City consume? Assume that Central City trades its extra 20 units of production. Fill in the chart below: Central City e. f. coffee arrows Before trade 50 20 With some specialization 70 12

Answer 1

here we assume both cities use half labor to produce coffee and another half for arrow production. After calculating opportunity cost we can see the central city has a comparative advantage in coffee production and star city has a comparative advantage in arrow production. Because the opportunity cost to produce coffee compare to the arrow is less in the central city and the opportunity cost to produce arrow compare to coffee is less in the star city. So the central city specializes in coffee production and the star city specialize in arrow production.