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Which firm has an absolute advantage in producing automobile

Assignment Help Microeconomics
Reference no: EM133536552

Question: Refer to the following table to answer the following questions:

 AutomobileRefrigerator
Firm 1 300 200
Firm 2 100 500

The above numbers in the table are regarding how many outputs are produced per worker, given capital technology and time constraints per day.

  1. Which firm has an absolute advantage in producing automobile? Which firm has an absolute advantage in producing refrigerator? Explain your answers.
  2. Calculate the opportunity costs and state which firm has a comparative advantage in producing automobile and refrigerator. Explain your answer.
  3. Draw the production possibility frontier for Firm 1 and 2 respectively. Make sure that the intercepts are clearly indicated.
  4. Illustrate in the graph what the consumption possibility frontier would look like if the two firms decide to produce both goods.
  5. If specialization is allowed, what would be the choice of production by Firm 1 and Firm 2 respectively? Why?
  6. How would the two firms trade? [Hint: what would be the price of trade?]

 

Reference no: EM133536552

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