Suppose Mexico and Nicaragua produce only chicken and vegetables. Mexico can pro

Question

Suppose Mexico and Nicaragua produce only chicken and vegetables. Mexico can produce 6 tons of chicken or 12 tons of vegetables each year. Nicaragua can produce 7 tons of chicken or 28 tons of vegetables each year Mexico's Production Possibilities Frontier Nicaragua's Production Possibilities Frontier Vegetables (tons) Vegetables (tons) 20 18 16 30 28 26 PT 2 PT2 PT 2 20 18 16 12 PT 1 10 PT 2 12 10 PT 1 4 SAVE 4 1 2 3 45 6 7 8 9 10 1 2 3 45 6 7 89 10 Chicken (tons) Chicken (tons) a. In the diagram above, draw the production possibilities frontier for each country Instructions: Use the tools provided (PPFa and PPFb) and plot only the endpoints such that the first point touches the vertical axis and the last point touches the horizontal axis b. Both countries want to consume 3 tons of chicken each year and as many vegetables as they can produce along with the 3 tons of chicken. Find this point on each production possibilities frontier Instructions: Use the tools provided (Pt 1) to plot the indicated points for each country. C. Suppose the countries specialize. Mexico d. Once they specialize, suppose they work out a trade of 3 tons of chicken in exchange for 8 tons of vegetables. Find the post will produce chicken. trade consumption point for each country Instructions: Use the tools provided (Pt 2) to plot the indicated points for each country. e. After trade, Mexico can consumemore tons of vegetables. After trade, Nicaragua can consume more tons of vegetables

Explanation / Answer

c) The opportunity cost of producing Chicken in Mexico = 2 tons of vegetable and the opportunity cost of producing Chicken in Nacaragua = 4 tons of vegetables.

Clearly, the opportunity cost of producing chicken is less in Mexico than Nacagarua. Hence, Mexico should specialize in the production of Chicken.

d) Given that the two countries specialize, total chicken produced = 6 tons and total vegetables produced = 28 tons.

If 3 tonsof chicken are traded for 8 tons of vegetable, Mexico's post trade consumption = 3 tons of chicken and 8 tons of vegetables.

Nacagarua's post trade consumption = 3 tons of chicken and 20 tons of vegetables.

e) After trade, Mexico consumes 2 more tonsof vegetables and Nicagarua consumes 4 more tons of vegetables.

[Point 2in Nicagarua should be places at (3,20) and not (3,22)].

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