Pi = Price of iPhone Pm = Price of MacBook Li = Unit labor requirement for iPhon
ID: 1217771 • Letter: P
Question
Pi = Price of iPhone
Pm = Price of MacBook
Li = Unit labor requirement for iPhone production
Lm = Unit labor requirement for Macbook production
Pi/Pm = Relative price of iPhone to MacBook in the United States (U.S.)
Li/Lm = Opportunity cost of producing iPhone to MacBook in the U.S.
A) If Pi/Pm > Li/Lm, then U.S. should specialize in the production of
a. iPhone
b. MacBook
c. Both
B) If Pi/Pm < Li/Lm, then U.S. should specialize in the production of
a. iPhone
b. MacBook
c. Either
C) If Pi/Pm = Li/Lm, then U.S. can choose to specialize in the production of
a. iPhone
b. MacBook
c. Either
Explanation / Answer
Since relative price of labour is higher US should specialize in Mac book production in 1st case.
In 2nd case US can specialize in iphone production.
In third case US can produce either of the commodity.