Question: How should i solve the last question ? The following table presents the labour input required per kg of chicken and litre of palm oil

How should i solve the last question ?

The following table presents the labour input required per kg of chicken and litre of palm oil

in Malaysia and Indonesia (assuming constant returns to scale):

Indonesia Malaysia

	Indonesia	Australia
Chicken(hour/kg)	8	6
Palm Oil(hour/litre)	4	8

a. Sketch a production possibility frontier for an 24-hour work-day, for each country.

Label your diagrams correctly. Note: put 'chicken' on the vertical axis and 'palm oil' in

the horizontal axis. [4 marks]

b. Which country has an absolute advantage in producing chicken? Which country has

an absolute advantage in producing palm oil? Explain and justify your answer.

c. Which country has a comparative advantage in producing chicken? Which country

has a comparative advantage in producing palm oil? Justify your answer.

d. Using the diagrams drawn in part a, demonstrate and explain that full specialization

and trade make both countries better off. Assume Indonesia trades 2 litres of palm

oil and receives 2 kg of chicken from Malaysia. Suppose further originally Indonesia

consumes 4 litres of palm oil and 1 kg of chicken; Malaysia consumes 1.5 litres of

palm oil and 2 kg of chicken .

e. Suppose Indonesia and Malaysia trade chicken and palm oil with each other

i. What is the range for mutually-beneficial trade for 4 litres of palm oil? Explain

and justify your answer.

ii. Suppose that Malaysia exchanges 8 kg of chicken for 10 litres of palm oil with

Indonesia. [4 marks]

How much does Malaysia gain in terms of palm oil?

How much does Indonesia gain in terms of palm oil?

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