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Acme Corp is located in country A. Country A enjoys high economies of scale in the...

Acme Corp is located in country A. Country A enjoys high economies of scale in the production of farm implements, but must import almost all its food. The government of country A has decided to export its farm implements to country B, which enjoys economies in the production of agricultural products, but doesn’t have an industry to produce farm implements. Why wouldn’t country A want to try to produce its food internally and country B start a farm implement industry?

a. Country A has an absolute advantage in farm implements while country B has a comparative advantage in agricultural products

b. Country B has a comparative advantage in farm implements while country A has a comparative advantage in agricultural products

c. Country A has an absolute advantage in agricultural products while country B has a comparative advantage in farm implements

d. Country B has a comparative advantage in farm implements while country A has an absolute advantage in agricultural products

e. None of the above.

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Answer #1

Answer:

  • Option E: None of the above

Explanation:

  • The reason is country A has a comparative advantage in farm implements, whereas B has a comparative advantage in agricultural products.
  • Comparative advantage in a product for producer means producing 1 unit of that product will yield more value than producing 1 unit of other product.
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