Opportunity cost

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You say that if Michelle specializes in producing potatoes and James specializes in raising chickens and then they trade at a rate of 2.5 pound of potatoes per chicken both of them will be better off. However, you do not explain. Both gain from specialization and trade at this price: If Michelle produces both goods, she can consume say 120 Potatoes and 20 chicken (she gives up 80 lbs to produce 20 chicken at a ratio of 4/1). However, if she buys the chicken from James, by giving up 80 pounds, she will get 32 chicken (80/2.5). James also gains because now he can get his 80 pounds of Potatoes and still have 8 chicken left (40-32). Without trade, if he decides to produce 80lbs of Potatoes, he will not produce any chicken. ————————————————————————-

What is Michelle’s opportunity cost of producing Potatoes? — 10/10

What is Michelle’s opportunity cost of producing chicken? — 10/10

What is James’ opportunity cost of producing Potatoes? — 10/10

What is James’ opportunity cost of producing chicken? — 10/10

Which person has an absolute advantage in which activities? — 20/20

Which person has a comparative in which activities? —- 30/30

Suppose that they are thinking of each specializing completely in the area in which they have a comparative advantage, and then trading at a rate of 2.5 pounds of Potatoes for 1 chicken, would they each be better off? Explain. —

10/30 How would you extend the above narrative to businesses, society as a whole or nations? Explain. — 20/20 Good grammar and use of complete sentences ————————-

Question asked…..Suppose that two people, Michelle and James each live alone in an isolated region. They each have the same resources available, and they grow potatoes and raise chickens. If Michelle devotes all her resources to growing potatoes, she can raise 200 pounds of potatoes per year. If she devotes all her resources to raising chickens, she can raise 50 chickens per year. (If she apportions some resources to each, then she can produce any linear combination of chickens and potatoes that lies between those extreme points. If James devotes all his resources to growing potatoes, he can raise 80 pounds of potatoes per year. If he devotes all his resources to raising chickens, he can raise 40 chickens per year. (If he apportions some resources to each, then he can produce any linear combination of chickens and potatoes that lies between those extreme points.) Potatoes ChickensMichelle 200 50James 80 40

What is Michelles opportunity cost of producing potatoes?

What is Michelles opportunity cost of producing chickens?

What is James opportunity cost of producing potatoes?

What is James opportunity cost of producing chickens?

Which person has an absolute advantage in which activities?

Which person has a comparative?

Suppose that they are thinking of each specializing completely in the area in which they have a comparative advantage, and then trading at a rate of 2.5 pounds of potatoes for 1 chicken, would they each be better off? Explain.

How would you extend the above narrative to businesses, society as a whole or nations? Explain. “

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