2. The Dominican Republic and Nicaragua both produce coffee and rum. The Dominican Republic can produce 15 thousand tonnes of coffee per year or 10 thousand barrels of rum. Nicaragua can produce 25 thousand tonnes of coffee per year or 5 thousand barrels of rum. a. Draw the production possibilities frontier for each country. b. Suppose the Dominican Republic and Nicaragua sign a trade agreement in which each country would specialize in the production of either coffee or rum. Which country should specialize in coffee? Which country should specialize in producing rum? c. What are the minimum and maximum prices at which these countries will trade coffee? Please include graph for question no. (a)

2. The Dominican Republic and Nicaragua both produce coffee and rum. The Dominican Republic can produce 15 thousand tonnes of coffee per year or 10 thousand barrels of rum. Nicaragua can produce 25 thousand tonnes of coffee per year or 5 thousand barrels of rum. a. Draw the production possibilities frontier for each country. b. Suppose the Dominican Republic and Nicaragua sign a trade agreement in which each country would specialize in the production of either coffee or rum. Which country should specialize in coffee? Which country should specialize in producing rum? c. What are the minimum and maximum prices at which these countries will trade coffee? Please include graph for question no. (a)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. The Dominican Republic and Nicaragua both produce coffee and rum. The Dominican Republic can produce 15
thousand tonnes of coffee per year or 10 thousand barrels of rum. Nicaragua can produce 25 thousand tonnes of coffee
per year or 5 thousand barrels of rum. a. Draw the production possibilities frontier for each country. b. Suppose the
Dominican Republic and Nicaragua sign a trade agreement in which each country would specialize in the production of
either coffee or rum. Which country should specialize in coffee? Which country should specialize in producing rum? c.
What are the minimum and maximum prices at which these countries will trade coffee? Please include graph for
question no. (a)

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Step 1: a. Drawing the Production Possibilities Frontier (PPF) for Each Country

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Step 2: b. Specialization Based on Comparative Advantage

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Step 3: Specialization Decision and Trade Price Range

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