Suppose that an average American worker produces 2 computers a week, while an av

Question

Suppose that an average American worker produces 2 computers a week, while an average Mexican worker produces 1 computer a week, and that an American worker can produce 3 shirts a week while a Mexican worker produces 2 shirts a week. Further suppose that there are 50 workers in each country, and the United States specializes in producing only computers while Mexico specializes in producing only shirts.

Then, the United States produces ______ computers and ______ shirts a week while Mexico produces ______computers and _______ shirts a week. Together, the two countries combined produce ______ computers and ______ shirts a week.

Explanation / Answer

The United States produces 100 computers and 0 shirts a week while Mexico produces 0 computers and 100 shirts a week. Together, the two countries combined produce 100 computers and 100 shirts.

(Note: Under the principle of Law of Comparative Advantage or Costs, both the countries can gain from trade when each concentrate on the production of that good in which it has greatest comparative advantage. In this case, the cost of production in both industries are lower in United states. Considering the opportunity cost, in United States cost of 1unit of computer is 1.5 units of shirt, similarly the opportunity cost in Mexico of 1 unit of computer is 2 uints of shirt. therefore United States has comparative advantage in production of computers)

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