Germany and France produce Televisions (T) and Microwaves (M). Both products are made only with labor. In Germany, it takes 4 hours to produce a TV and 1 hour to produce a microwave; in France, it takes 6 hours to make a TV and 1 hour for a microwave.

1. For each country, calculate the opportunity cost of the TV in terms of microwaves and the opportunity cost of the microwave in terms of televisions, and indicate where it is cheaper to produce televisions and where it is cheaper to produce microwaves.
2. Between what values should the TV price be in terms of microwaves for trade to exist between Germany and France?
3. Calculate the wage level for each country. [Hint: for this, must make some assumptions such as setting a value for the price of the TV set in terms of microwave, and with this, set the price (in $) of the TV set and the price (in $) of the microwave].
4. With 3), calculate the costs (in $) for each product in each country.
5. With this result, explain the cost advantage that each country has for exporting a given product.

Answer rating: 100% (QA)

Opportunity Costs and Comparative Advantage 1 Opportunity Cost Germany Opportunity Cost of TV in microwaves Labor hours for TV Labor hours for microwa... View the full answer