Initially, suppose Bellissima uses 1 million hours of labor to produce rye and 3
ID: 1183036 • Letter: I
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 2 pairs of jeans, and Bellissima's opportunity cost of producing one bushel of rye is 4 pairs of jeans. Therefore, Bellissima has a comparative advantage in the production of rye and Dolorium 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").Explanation / Answer
belisma has comparative advantage in rye total hours for belisma =1+3 =4 million hour hence quantity of rye =4/12 =0.3333 million rye ..... dolorium has advantage in jeans total hours =3+1 =4 quantity of jeans =4/32 =0.125 million jeans