Question

81. The tables give production possibilities data for two countries, Alpha and Beta, which have populations of equal size.

	Alpha's production possibilities
	A	B	C	D	E
Fish (Tons)	80	60	40	20	0
Chips (Tons)	0	5	10	15	20

	Beta's production possibilities
	A	B	C	D	E
Fish (Tons)	240	180	120	60	0
Chips (Tons)	0	10	20	30	40

Suppose that before specialization and trade, Alpha chose production alternative C and Beta chose production alternative B. After specialization and trade, the gains will be

Group of answer choices

a. 20 tons of fish.

b. 20 tons of chips.

c. 20 tons of fish and 20 tons of chips.

d. 240 tons of fish and 20 tons of chips.

Answer 1

Opportunity cost of producing 1 ton of chips :

for Alpha = 80/20 = 4 tons of fish.

for Beta = 240/40 = 6 tons of fish.

Since opportunity cost of producing 1 ton of chips is lower for alpha so alpha has a comparative advantage in Producing chips.

So, alpha will specialize in producing chips and beta will specialize in Producing fish.

after specialization,

Total chips produced = 20

total fish produced = 240

Before specialization,

total chips produced= 10+10 = 20

total fish produced= 40+180 = 220

After specialization and trade, the gains will be 240-220= 20 tons of fish.

Therefore, correct answer is A.