Consider two countries, Caledonia and Scotia. If Caledonia puts all its resource
ID: 1157362 • Letter: C
Question
Consider two countries, Caledonia and Scotia. If Caledonia puts all its resources in production of meat, they can produce 100 tons of meat; if puts all its resources in production of milk, they can produce 40 tons of milk; the opportunity cost of producing meat (in terms of forsaken milk) is constant. If Scotia puts all its resources in production of meat, they can produce 40 tons of meat; if puts all its resources in production of milk, they can produce 100 tons of milk; the opportunity cost of producing meat (in terms of forsaken milk) is constant. 1. If Caledonia, as an autarky, puts half of its resources in production of meat, and half in production of milk, how much meat and milk will the Caledonians consume? 2. If Scotia, as an autarky, puts half of its resources in production of meat, and half in production of milk, how much meat and milk will the Scotians consume?
Explanation / Answer
Question 1
Using all its resources, Caledonia can produce either 100 tons of meat or 40 tons of milk.
So, the opportunity cost of producing 1 ton of milk is sacrifice of (100/40) 2.5 tons of meat.
Utilizing all its resources, Caledonia can produce 100 tons of meat. So, if it uses half its resources in production of meat, it can produce 50 tons of meat.
In this scenario, it will sacrifice prouction of 50 tons of meat.
Sacrifice of 50 tons of meat can lead to production of (50/2.5) 20 tons of milk.
So,
If Caledonia, as an autarky, puts half its resources in production of meat, and half in production of milk, Caledonians can consume 50 tons of meat and 20 tons of milk.
Question 2
Using all its resources, Scotia can produce either 40 tons of meat or 100 tons of milk.
So, the opportunity cost of producing 1 ton of milk is sacrifice of (40/100) 0.4 tons of meat.
Utilizing all its resources, Scotia can produce 40 tons of meat. So, if it uses half its resources in production of meat, it can produce 20 tons of meat.
In this scenario, it will sacrifice prouction of 20 tons of meat.
Sacrifice of 20 tons of meat can lead to production of (20/0.4) 50 tons of milk.
So,
If Scotia, as an autarky, puts half its resources in production of meat, and half in production of milk, Scotians can consume 20 tons of meat and 50 tons of milk.