givek inputs than anyone else can. Maximum Feasible Hourly Production Rates for

Question

givek inputs than anyone else can. Maximum Feasible Hourly Production Rates for either Computers or Bicycles Using All Available Resources Product Computers Bicycles United States Mexico 6 21) According to the above table, if these two countries trade, A) Mexico should specialize in computers and the United States in bicycles. B) the United States should specialize in both computers and bicycles. C) the United States should specialize in computers and Mexico should specialize in bicycles D) we cannot tell which country should specialize in which good without knowing the amount of labor utilized in each country

Explanation / Answer

Option (C).

Let us compute Opportunity Cost (OC).

For United States,

OC of Computers = 6 / 8 = 0.75 Bicycle

OC of Bicycles = 8 / 6 = 1.33 Computers

For Mexico,

OC of Computers = 4 / 2 = 2 Bicycle

OC of Bicycles = 2 / 4 = 0.5 Computers

Since United States can produce computers at a lower OC than Mexico can (0.75 < 2), United States has comparative advantage in Computers and should specialize in and export computers. Therefore Mexico has comparative advantage in Bicycles and should specialize in and export bicycle.

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