2 Short Answer 1. For the following outpats per worker per day in the production

Question

2 Short Answer 1. For the following outpats per worker per day in the production of two goods, handbags and hand grenades, in two countries, A and B, answer the following question 30 (a) (5 points) Which country has an aleolute advantage in producing handbags Why (b) (5 points) Which country has an abeolute advantage in producing hand-grenades? Why (c) (5 paints) which country hascomparative nclvarta" in producing handbags? why(show any calculations)? (d) (s poisds) Which country has a comperative advantage in prodocing hand-genades Why(show

Explanation / Answer

Answer
a) and b)
Country A has an absolute advantage in the production of both the goods because the country has more production than the country B.
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C and d
Comparative advantage is based on the opportunity cost
The opportunity cost of a good x=maximum production of good y / maximum production of good x
The opportunity cost of Han-grenade for Country A=20/60=0.33
The opportunity cost of Han-grenade for Country B=15/30=0.5
so the country A has the comparative advantage in the production of Hand-grenade and B in Handbags.

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