1.0 Rory and Andrea have decided to adopt a baby. They are trying to decide who
ID: 2505491 • Letter: 1
Question
1.0 Rory and Andrea have decided to adopt a baby. They are trying to decide who should be the stay at home parent. Both Rory and Andrea can either work out of the household, producing "consumption units" (CU) or in the household, producing "home units". In one week Rory can produce 5 CU or 2 HU or some combination of both. In one week Andrea can produce 3 CU or 3 HU or some combination of both. Both Rory and Andrea have a constant trade-off between CU and HU.
Currently, Rory is producing 2.5 CU and 1 HU per week. Andrea is producing 1.5 CU and 1.5 HU per week.
a) What is the opportunity cost of a unit of CU for Rory? What is the opportunity cost of HU for Rory? What is the opportunity cost of a unit of CU for Andrea? What is the opportunity cost of HU for Andrea?
b) Who has the absolute advantage in HU production? Comparative advantage? Who has the absolute advantage in CU production? Comparative advantage?
c) Rory and Andrea decide who will stay at home with the baby and who will work. What do they decide? Assuming they completely specialize, what are the gains from trade? That is, how does the total CU and HU produced by the two individuals compare to what it was before they specialized?
d) Unexpectedly, Andrea is offered a new job. Andrea can now produce 7.5 CU or 3 HU or a mix of the two. Should they continue to specialize and trade?
Explanation / Answer
We decided to adopt because we wanted to be parents. We went the traditional route of trying to conceive, even though we knew it was unlikely to take, but we decided not to pursue any fertility treatments as I felt that I wanted to be a mom more than I wanted to be pregnant. We adopted from China after a great deal of research and 2 years later we decided to adopt from foster care once we realized that the wait time for China was far to excessive. We went to a rsource exchange seminar and met with other parents who adopted from foster care. I'm not really sure what I thought it would be like, but I remember that I was a mixed bag of emotions: fear, excitement, anxiety, isecurity, confidence. And yes, I would do it all again!!
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