Question

Assume that France can produce wine at 25 bottles per worker and cheese at 5 pounds per worker. Assume that Italy can produce 10 bottles of wine per worker and 20 pounds of cheese per worker. (a) In terms of cheese, what is the opportunity cost of producing wine in each country? (b) Who has the comparative advantage in producing cheese? (c) Which country should most likely specialise in cheese? in wine?​

Answer 1

Answer:

(a) 65

(b) 56

(c) 79

Explanation:

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Answer 2

We can say that, France should specialize in wine production and Italy should specialize in cheese production.

Explanation for the above answer:

(a)

The opportunity cost of producing wine in France = 5/25

                                                                                   =0.2Pounds          

The opportunity cost of producing wine in Italy= 20/10

                                                                             = 2 pounds.

So, France have to give .2 pounds to produce one bottle of wine while Italy have ro give 2 pounds.

(b)

The opportunity cost of producing cheese in France = 25/5

                                                                                        = 5 bottles

The opportunity cost of producing cheese= 10/20

                                                                      = 0.5 bottles

So, form the above calculation, Italy has the comparative advantage in producing cheese due to the opportunity cost of producing cheese is lower as compare to the France.

(c) So we can say that, France should specialize in wine production and Italy should specialize in cheese production.

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