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Kim can produce 40 pies or 400 cakes an hour. Liam can produce 100 pies or 200 cakes an hour.
Question a) Calculate Kim's opportunity cost of a pie and Liam's opportunity cost of a pie.
Question b) If each spends 30 minutes of each hour producing pies and 30 minutes producing cakes, how many pies and cakes does each produce?
Question c) Who has a comparative advantage in producing (i) pies and (ii) cakes?
Question d) Draw a graph of Kim's PPF and Liam's PPF and show the point at which each produces when they spend 30 minutes of each hour producing pies and 30 minutes producing cakes.
Question e) On your graph, show what Kim produces and what Liam produces when they specialize.
Question f) When they specialize and trade, what are the total gains from trade?
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