Production Possibilities and Comparative Advantage
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Abe and Max are tailors. Their production possibilities tables for trousers and jackets are given below. Abe chooses production alternatives D, while Max chooses alternatives E from his alternatives.
ABE: Production Possibilities Table
Production Alternative
Product A B C D E F
Trousers 75 60 45 30 15 0
Jackets 0 10 20 30 40 50
MAX: Production Possibilities Table
Production Alternative
Product A B C D E F G
Trousers 60 50 40 30 20 10 0
Jackets 0 5 10 15 20 25 30
a) For Abe 1 pair of trousers costs _____ jackets, and 1 jacket costs _____ pairs of trousers.
b) For Max 1 pair of trousers costs ______ jackets and 1 jacket costs _____ pairs of trousers.
c) The comparative advantage in making trousers lies with ______ because his opportunity cost is (higher, lower) _________. The comparative advantage in making jackets lies with ______ because his opportunity cost is (higher, lower)________.
d) If Abe and Max for a partnership, Abe should specialize in making __________, and Max should specialize in making ____________.
e) Working independently, Abe and Max produce a total of 50 pairs of trousers and 50 jackets. If each specializes fully, their combined output will be ______ pairs of trousers, and _______ jackets. Thus the gain from specialization is ______ 10 pairs of trousers and _______ jackets.
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