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Get your best test score KAPLAN+Chegg Tools for your test Pracfice Expert Q&A 23 3618 37 poits Previous Ansavers Se PSE 6P025 My Notes Ask Your Teacher A bolt drops Books Tutors 1. (19 points) Assume Nebraska and Virginia each have 100 acres of farmland. The following table gives hypothetical figures for yield per acre in the two states: Virginia Nebraska 14 15 Wheat Cotton A) (4 points) Who has the absolute advantage in the production of wheat? Who has the absolute advantage in the production of cotton? Who has the comparative advantage in the production of wheat? Who has the comparative advantage in the production of cotton? B) (8 points) In this exercise, you will find actual points on the combined Production Possibilities Curve (PPC) of the two states. For each of the following values of one good, calculate the maximum amount of the other good that the two countries could produce working together. Cotton Wheat 630 270 600 1500

Explanation / Answer

(a) Nebraska has an absolute advantage in the production of wheat and cotton.

In case of production of wheat,

the opportunity cost of wheat for Nebraska is 15/14 = 1.07 units of cotton

the opportunity cost of wheat for Virginia is 3/2= 1.5 units of cotton

As Nebraska has a lower opportunity cost of wheat implies Nebraska has a comparative advantage in the production of wheat and Virginia has a comparative advantage in the production of cotton.

The opportunity cost of cotton for Nebraska is 14/15 =0.93units of wheat

the opportunity cost of cotton for Virginia is 2/3=0.67 units of wheat.

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