How the absolute and comparative advantage affect the trade between EU and US Concept Introduction: Opportunity Cost : It is the next best option available to a person. Opportunity cost refers to the benefits which are given up in the process of obtaining current result. Production Possibility Frontier (PPF): It is defined as the combination of all goods that can be manufactured efficiently with the available resources. It is also called production possibility curve. It may be increasing decreasing or constant in nature. Comparative Advantage: In a trade a country has comparative advantages in producing goods when the opportunity cost of producing that good is less in comparative to the nation with which it is trading. Absolute Advantage : It is the capacity of a nation, firm or individual to produce output at very low cost per unit in comparison to other entity that produces same output.

Question

The following graph shows the downward-sloping demand curve for Oiram-46, a monopolist producing unique magic hats. The graph also shows Oiram-46's marginal revenue curve and its average total cost curve. On the following graph, use the orange point (square symbol) to indicate the profit-maximizing quantity. Use the blue point (circle symbol) to indicate the profit-maximizing price. Use the purple point (diamond symbol) to indicate the average total cost. Use the tan rectangle (dash symbol) to show Oiram-46's total revenue and the grey rectangle (star symbol) to show its total cost. PRICE (Dollars per magic hat) 2 0 20 Marginal Cost 18 ATC 16 Profit-Maximizing Quantity 14 12 Profit-Maximizing Price MC 8 Demand 02 4 6 8 10 12 14 16 18 20 QUANTITY (Magic hats per week) Based on the graph, Oiram-46's profit is equal to 5 TOTAL SCORE: 1/4 Average Total Cost Total Revenue Total Cost Grade Step 2 (to complete this step and unlock the next step)

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Chapter 2, Problem 5P

To determine

How the absolute and comparative advantage affect the trade between EU and US

Concept Introduction:

Opportunity Cost: It is the next best option available to a person. Opportunity cost refers to the benefits which are given up in the process of obtaining current result.

Production Possibility Frontier (PPF): It is defined as the combination of all goods that can be manufactured efficiently with the available resources. It is also called production possibility curve. It may be increasing decreasing or constant in nature.

Comparative Advantage: In a trade a country has comparative advantages in producing goods when the opportunity cost of producing that good is less in comparative to the nation with which it is trading.

Absolute Advantage: It is the capacity of a nation, firm or individual to produce output at very low cost per unit in comparison to other entity that produces same output.

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The following graph shows the downward-sloping demand curve for Oiram-46, a monopolist producing unique magic hats. The graph also shows Oiram-46's marginal revenue curve and its average total cost curve. On the following graph, use the orange point (square symbol) to indicate the profit-maximizing quantity. Use the blue point (circle symbol) to indicate the profit-maximizing price. Use the purple point (diamond symbol) to indicate the average total cost. Use the tan rectangle (dash symbol) to show Oiram-46's total revenue and the grey rectangle (star symbol) to show its total cost. PRICE (Dollars per magic hat) 2 0 20 Marginal Cost 18 ATC 16 Profit-Maximizing Quantity 14 12 Profit-Maximizing Price MC 8 Demand 02 4 6 8 10 12 14 16 18 20 QUANTITY (Magic hats per week) Based on the graph, Oiram-46's profit is equal to 5 TOTAL SCORE: 1/4 Average Total Cost Total Revenue Total Cost Grade Step 2 (to complete this step and unlock the next step)

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