Two friends, Monica and Phoebe, enjoy baking bread and making apple pies. Monica can bake either 10 loaves of bread or 5 pies during the day. Phoebe can bake 8 loaves of bread or 8 pies during the day. (a) Draw one diagram showing the production possibility frontier for Monica and another showing the production possibility frontier for Phoebe. Assume that all production possibility frontiers are linear. (b) Calculate Monica's and Phoebe's opportunity costs of baking bread? (c) Who has the comparative advantage in baking bread? In baking pies? (d) Now Monica and Phoebe decide to specialize in order to increase their joint production (produce only the good in which they have a comparative ad- vantage). What would be their production of bread and pie? (e) After specializing they decide to trade bread and pies. Suppose Monica trades 4 bread in exchange for 3 pies from Phoebe. Calculate Monica and Phoebe's consumption of bread and pie after the trade. Are there gains from trade? Explain using a graph or a table
Two friends, Monica and Phoebe, enjoy baking bread and making apple pies. Monica can bake either 10 loaves of bread or 5 pies during the day. Phoebe can bake 8 loaves of bread or 8 pies during the day. (a) Draw one diagram showing the production possibility frontier for Monica and another showing the production possibility frontier for Phoebe. Assume that all production possibility frontiers are linear. (b) Calculate Monica's and Phoebe's opportunity costs of baking bread? (c) Who has the comparative advantage in baking bread? In baking pies? (d) Now Monica and Phoebe decide to specialize in order to increase their joint production (produce only the good in which they have a comparative ad- vantage). What would be their production of bread and pie? (e) After specializing they decide to trade bread and pies. Suppose Monica trades 4 bread in exchange for 3 pies from Phoebe. Calculate Monica and Phoebe's consumption of bread and pie after the trade. Are there gains from trade? Explain using a graph or a table
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter2: Economic Tools And Economic Systems
Section: Chapter Questions
Problem 18PAE
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Transcribed Image Text:Two friends, Monica and Phoebe, enjoy baking bread and making apple pies.
Monica can bake either 10 loaves of bread or 5 pies during the day. Phoebe can
bake 8 loaves of bread or 8 pies during the day.
(a) Draw one diagram showing the production possibility frontier for Monica
and another showing the production possibility frontier for Phoebe. Assume
that all production possibility frontiers are linear.
(b) Calculate Monica's and Phoebe's opportunity costs of baking bread?
(c) Who has the comparative advantage in baking bread? In baking pies?
(d) Now Monica and Phoebe decide to specialize in order to increase their joint
production (produce only the good in which they have a comparative ad-
vantage). What would be their production of bread and pie?
(e) After specializing they decide to trade bread and pies. Suppose Monica
trades 4 bread in exchange for 3 pies from Phoebe. Calculate Monica and
Phoebe's consumption of bread and pie after the trade. Are there gains from
trade? Explain using a graph or a table
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