Answered: A) Which producer has the comparative…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A) Which producer has the comparative advantage in producing puzzles?

Geppetto or Lewis

B) Which producer has the comparative advantage in producing puppets?

C) If both producers decided to trade with each other to stock their toy stores, which of the following is a range of terms of trade that would benefit both Geppetto and Lewis (1 puppet = x puzzles)?

Please explain to me how to solve those questions. Don't just give me the answers. Thank you so much!

Geppetto and Lewis both make puzzles and puppets for their toy stores. The table below compares their production possibilities
schedules.
Production Possibilities Schedules
Geppetto
Lewis
Puzzles
Puppets
Puzzles
Puppets
100
50
80
4
40
5
60
8
30
10
40
12
20
15
20
16
10
20
20
25

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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