Puma and Lima are two countries that both produce bananas and sugar. In Puma eac

Question

Puma and Lima are two countries that both produce bananas and sugar. In Puma each worker in a one-hour period can produce either 11.83 pounds of bananas or 3.96 pounds of sugar. In Lima each worker in a one-hour period can produce either 14.43 pounds of bananas or 7.03 pounds of sugar. Suppose both countries have constant opportunity cost of production and decide to specialize and exchange. The country that specializes in sugar is willing to sell 100 pounds of sugar for at least how many pounds of bananas. Enter a numerical value, rounded to two decimal places, such as 4.56 or 8.20.

Explanation / Answer

Puma

1labor hour = 11.83 pounds of banana

1 labour hour = 3.96 pounds of sugar

Opportunity cost of 1 pound of banana = 3.96/11.83 = 0.3347

Opportunity cost of 1 pound of sugar = 11.83/3.96 = 3.987

Lima

1 lanour hour = 14.43 pounds of banana

1 labour hour = 7.03 pounds of sugar

Opportunity cost of 1 pound of banana = 7.03/14.43 = 0.487

Opportunity cost of 1 pound of sugar = 14.43/7.03 = 2.0526

Puma has lower opportunity cosrt in producing banana and lima has lower opportunity cost in producing sugar

Puma will export banana and Lima will export sugar

Lima will export 1 pound ofsugar for at least 2.052 banana

For 100 pounds of sugar this will be 205.26 banana

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