2. The only two countries in the world, Alpha and Omega, face the following prod

Question

2. The only two countries in the world, Alpha and Omega, face the following production Alpha's Production Possibilities Frontier Omeza's Production Possiblitics Frontler 275 250 225 300 275 250 225 173 125 125 29 54 " 125 139 175 2 " 125 214 a. Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A If these countries choose not to trade, what would be the total world production of b. popcom and peanuts? Now suppose that each country decides to specialize in the good in which each has a comparative advantage. By specializing, what is the total world production of each product now? c. d If cach country decides to trade 100 units of popcom for 100 units of peanuts, show on the graphs the gain each country would receive from trade. Label these points E

Explanation / Answer

Your answer is correct

a) Since the resources are halved. Now Alpha's production

the quantity of peanuts are = 250/2 = 125. Now the quantity of popcorns are 150/2 = 75

Omega's production

The quantity of peanuts = 100/2 = 50

The quantity of popcorns = 300/2 = 150

b) total production of peanuts = 125 + 50 = 175

Total production of popcorns = 75 + 150 = 225

c) since alpha has lower opportunity cost so total production of peanuts = 250

Omega has lower opportunity cost of producing popcorns so total production of popcorns = 300

d) for alpha the consumption point is (150,100) and omega's consumption point is (100,200)

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