Question

6. Suppose Country A can produce 200 toys or 400 pineapples per day, while Country B can produce 300 toys or 900 pineapples per day. Where do the comparative advantatges lie? Should trade take place?

Answer 1

the comparative advantage depends on the lower opportunity cost of the production.

The opportunity cost of a good=maximum production of the other good/maximum production of the good

the opportunity cost of toys for country A=400/200=2

the opportunity cost of toys for country B=900/300=3

so the opportunity cost of toys is lower for country A so country A has the comparative advantage in toys and country B have the comparative advantage in pipelines.

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the trade will take place and country A will produce toys and country B will produce pipelines.