the following table provides l
the following table provides labour productivity for twoindividuals ann and bob in the production of coconuts and fish.
coconut fish
Ann 6 12
Bob 9 18
a. if both individuals allocate their resources evenly in theproduction of each good, what the total production of eachgoods
b. which individuals has an absolute advantage in what good?
C. What is Ann’s opportunity cost of producing coconut ?fish?
d. What is Bob’s opportunity cost of producing coconut ?fish?
e. who has comparative advantage in producing coconut ?fish?
f. if both individuals specialized in the production of the goodin which they have a comparative advantage in, what will be the newtotal production?
g. what are the gains from specialization?
Answer:
[FIRST FIVE PARTS]
a. Each of them allocates their resources evenly in bothgoods.
So ann produces (6/2) = 3 coconut and (12/2) = 6 fish.
So, Bob will produce (9/2) = 4.5 coconut and (18/2) = 9fish.
So, total production
Coconut = 3+4.5 = 7
Fish = 6+9 = 15
So, 7 coconuts and 15 fish are produced.
b. Bob has absolute advantage in production of both goods.
Given the labor productivity, Bob can produce 9 coconut in agiven time whereas ann can produce only 6 coconut. So, bob hasabsolute advantage in coconut.
Bob can produce 18 fish in a given time and ann can produce only12 fish. So bob has absolute advantage in fish also.
c. Opportunity cost of ann of producing
Coconut: (12/6) = 2 fish
Fish: (6/12) = 0.5 coconut
d. Opportunity cost for Bob of producing
Coconut: (18/9) = 2 fish
Fish: (9/18) = 0.5 coconut
e. No one has a comparative advantage in neither good. Fromearlier parts c and d, we can see that each person has equalopportunity costs of producing each good.
Both persons have same opportunity cost.
A person that has lower opportunity cost of producing a good issaid to have comparitive advantage in that good.
Since both have equal opportunity costs, no has a comparativeadvantage in either good.
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