Question

In country A a worker who works 40 hours can produce 200 pounds of rice or 100 pounds of broccoli. In country B a worker who works 40 hours can produce 160 pounds of rice or 120 pounds of broccoli.
Tom’s opportunity cost of mowing a lawn is 2 loads of laundry. Jen’s opportunity cost of mowing a lawn is 1.5 loads of laundry. What is the range of prices for mowing a lawn at which Tom and Jen could both benefit from trade?

Answer 1

In terms of laundry forgone, Tom's opportunity cost of mowing a lawn is higher than Jen's opportunity cost of mowing a lawn. So Jen has a comparative advantage in mowing a lawn, so she should specialize in mowing lawns and Tom should specialize in laundry.

She will mow Tom's lawn too, and would expect Tom to launder at least 1.5 times of the lawn (using whatever means to calculate this ratio), because anything less than 1.5 is worse than what she can do herself.

Similarly, Tom will launder Jen's also, and will expect her to mow at least 1/2 of laundry. He can do better than 1/2 himself.

Hence the range of prices will be 1.5 to 2.0 times of lawn for each unit of laundry.