Question: 9pt Consider the example where there are two countries, A and B, who can each produce only sugar and salt. The production possibilities of Country

  1. 9pt Consider the example where there are two countries, A and B, who can each produce only sugar and salt. The production possibilities of Country A are such that if they concentrated 100% of their resources into the production of sugar, they could produce 250 lbs of sugar and if 100% in salt then 250 lbs of salt. For Country B, if they concentrated 100% in sugar then 200 lbs of sugar and if in salt then 150 lbs of salt. Assume the production possibilities curve is linear.

100% production

Cost for 1 lb of

Sugar

Salt

Sugar

Salt

Country A

Country B

  1. What is Country A opportunity cost for 1 lb of salt? 3pt

  1. What is Country B opportunity cost for 1 lb of sugar? 3pt

  1. Which country has the comparative advantage in producing salt & Why? 3pt

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