Question

There are two countries, Home and Foreign, in a hypothetical world. Each of these two countries are Ricardian economies. Each country is endowed with 1000 labor hours, which can be used to produce goods X and Y. The following table shows labor requirements per unit of each good in each country. Perfect competition prevails everywhere in the two-country world. Suppose that wand w* represent Home’s and Foreign’s hourly wage rates, respectively.

Goods	Home	Foreign
X	ALx=2	A*Lx=4
Y	ALy=1	A*Ly=1

a. What is the marginal cost of goodX is ______ in Home.

b. What is the marginal cost of goodX is ______ in Foreign.

c. What is the marginal cost of goodY is ______ in Home.

d. What is the marginal cost of goodY is ______ in Foreign.

e. What is the opportunity cost of one unit of goodX in Home equals _______ unit (or units) of goodY.

f. Home’s labor productivity in production of goodX relative to that in production of good Y equals ______.

g. Foreign’s labor productivity in production of goodY relative to that in production of good X equals ______.

Answer 1

a. What is the marginal cost of goodX is =2w in Home.

b. What is the marginal cost of goodX is =4w* .

in Foreign.

c. What is the marginal cost of goodY is =w in Home.

d. What is the marginal cost of goodY is =w* in Foreign.

e. What is the opportunity cost of one unit of goodX in Home equals = 2/1=2 unit (or units) of goodY.

f. Home’s labor productivity in production of goodX relative to that in production of good Y equals (1/2)/(1/1)=1/2=0.5

g. Foreign’s labor productivity in production of goodY relative to that in production of good X equals =(1/1)/(1/4)=4