Consider the table below for the neighboring nations of Northland and West Coast
ID: 1178716 • Letter: C
Question
Consider the table below for the neighboring nations of Northland and West Coast. The table lists the maximum feasible hourly rates of the production of pastries if no sandwiches are produced and the maximum feasible hourly rates of the production of sandwiches if no pastries are produced. Assume that the opportunity costs of producing these goods are constant in both nations.
Product
Northland
West Coast
Pastries (per hour)
50,000
100,000
Sandwiches (per hour)
25,000
200,000
Based on the data provided, what is the opportunity cost of producing pastries and sandwiches in Northland? What is the opportunity cost of producing pastries and sandwiches in West Coast? Which nation has a comparative advantage in producing pastries and which nation has a comparative advantage in producing sandwiches? Suppose the two nations choose to specialize in producing the goods for which both have a comparative advantage. Both agree to trade at a rate of exchange of one pastry for one sandwich. At this rate of exchange, what are the maximum numbers of pastries and sandwiches that both could agree to trade?
Explanation / Answer
the opportunity cost of producing a pastry in Northlandis 1/2sandwich
the opportunity cost of producing a Sandwich in Northland is 2 pastries
the opportunity cost of producing a pastry in West Coast is 2 sandwiches
the opportunity cost of producing a Sandwich in West Coast is 1/2 pastry
Northland has a comparitive advantage in producing pastries. West Coast has a comparative advantage in producing Sandwiches.
25000 pastries for 25000 sandwiches
So, now Northland has 25000 Pastries and 25000 sandwiches and west coast have 175000 sandwiches and 25000 pastries.