The country of Uncoordinated requires 5 units of labor to produce one unit of co

Question

The country of Uncoordinated requires 5 units of labor to produce one unit of corn and 10 units of labor to produce one unit of housing. Uncoordinated has 100 total units of labor available. Uncoordinated has Leontief preferences (right-angle indifference curves) with the bend at equal shares of housing and corn.The country of Gifted requires 1 unit of labor to produce one unit of corn and 1 unit of labor to produce one unit of housing. Gifted has 10 units of labor available and Leontief preferences (right-angle indifference curves) with the bend at 2 units of corn for every unit of housing.a)Find the autarky levels of output for both countries.b)Identify which country has the comparative advantage in the production of each of the goods.c)Identify which country has the absolute advantage in the production of each of the goods.d)Develop a scheme of international trade that leaves both countries better off. In other words, show how specialization and trade can generate higher levels ofconsumption.e)Is the scheme developed in (d) the only possible welfare improving trade outcome? Why or why not?

Explanation / Answer

Marginal analysis involves a cost-versus-benefits comparison of various business activities. In marginal analysis, the cost of an activity is measured against incremental changes in volume to determine how the overall change in cost will affect the bottom line of a business. Marginal analysis can show the cost of additional production by a business all the way up to the break-even point. This is generally the maximum cost that a business can sustain without losing money.

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