Question

Thailand and Argentina both produce shrimp and wheat. Thailand can produce 60 thousand pounds of shrimp or 15 thousand bushels of wheat in a year. Argentina can produce 75 thousand pounds of shrimp or 25 thousand bushels of wheat in a year.

Argentina’s opportunity cost of producing one bushel of wheat is equal to ______ pounds of shrimp.

Thailand’s opportunity cost of producing one bushel of wheat is equal to _______ pounds of shrimp.

The two countries decide to specialize and trade with each other. The country that produces wheat will sell ten bushels of wheat for no less than _____ pounds of shrimp. The other country will pay no more than ______ pounds of shrimp for the ten bushels of wheat.

Enter numbers rounded to two decimal places as necessary.

Answer 1

Argentina can produce 75 thousand pounds of shrimp or 25 thousand of bushels of wheat.

So,

Argentina's opportunity cost of producing one bushel of wheat is equal to (75/25) 3 pounds of shrimp.

Thailand can produce 60 thousand pounds of shrimp or 15 thousand bushels of wheat.

So,

Thailand's opportunity cost of producing one bushel of wheat is equal to (60/15) 4 pounds of shrimp.

Argentina can produce wheat at lower opportunity cost than Thailand.

Therefore,

Argentina has comparative advantage in production of wheat. So, Argentina will specialize in production of wheat.

Thailand will specialize in production of shrimp.

Thus,

The country that produces wheat will sell ten bushels of wheat for no less than 30 pounds of shrimp. The other country will pay no more than 40 pounds of shrimp for the ten bushels of wheat.