Below are some possible combinations of rice and fish for people living on the I

Question

Below are some possible combinations of rice and fish for people living on the Islands of Alpha and Beta. Suppose the Alphas currently produce and consume 10 pounds of rice and 60 pounds of fish. The Betas currently produce 15 pounds of fish and 25 pounds of rice. Each island can produce any linear combination in between the points of producing only one type of good.

A. What is the opportunity cost of 1 pound of rice on Alpha Island? (Answer with a number and good. For example, "12 bicycles").

B. What is the opportunity cost of 1 pound of rice on Beta Island? (Answer with a number and good. For example, "12 bicycles").

C. Which island has the comparative advantage in rice production?

D. Suppose that the Alphas propose a trade in which they specialize in fish and give the Betas (who would specialize in rice) 15 pounds of fish and receive 10 pounds of rice in return. Would it be rational to agree? Explain why

Explanation / Answer

A.The opportunity cost of 1 pound of rice on Alpha Island is 2 bicycles

B.The opportunity cost of 1 pound of rice on Beta Island is 1 bicycle.

C.The island Beta has a comparative advantage in producing rice.

D.If island alpha produces only rice it can produce 40 pounds of rice giving up 80 bicycles.However, if it specializes in fish and recives rice in return.Each pound of rice has a price of 1.5 pound of fish.It would therefore be rational to agree.

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