Question

The data below shows the total production in millions of the only two goods produced in Alpha and Omega, two small planets in the deep space.

Alpha: 30 tables or 150 puzzles

Omega: 50 tables or10 puzzles

Calculate an answer for each of the following questions:

A.what is the opportunity cost of each product in Alpha?

B.what is the opportunity cost of each product in Omega?

C.In which planet is each product cheaper?

D.If, before trade, each planet was to devoting half its resources to producing each product, what is the total amount that they were producing?

E.If each planet were specializing in producing the product they do best, what would be the total amount they could produce?

F.What are the total gains as a result of specialization?

Answer 1

A) Alpha:

30 tables = 150 puzzles

1 table = 150/30 = 5 puzzles

1 puzzle = 30/150 = 0.2 table

Opportunity cost of 1 table is 5 puzzles and 1 puzzle is 0.2 table.

B) Omega:

50 tables = 10 puzzles

1 table = 10/50 = 0.2 puzzle

1 puzzle = 50/10 = 5 tables

Opportunity cost of 1 table is 0.2 puzzle and 1 puzzle is 5 tables.

C) Puzzles are cheaper in Alpha while Tables are cheaper in Omega.

D) Alpha: Table = 15 and Puzzle = 150/2 = 75

Omega: Table = 50/2 = 25 and Puzzle = 10/2 = 5

E) Alpha is specialized in the production of puzzles while Omega is specialized in the production of Table.

Total production of tables = 50 tables

Total production of puzzles = 150 puzzles

F) Gain in number of tables = 50 - (15 + 25) = 10

Gain in number of puzzles = 150 - (75 + 5) = 70

Total gain as a result of specialization = 80 units