Both the European Union and the United States produce cars and television shows. Assume the labor costs (in worker hours) required for the production of cars and programs is as follows:
Assume each region has 240,000 worker hours to divide between producing cars and television shows. Initially, assume workers are divided equally between producing cars and television shows.
(a) What are the initial levels of production of cars and TV shows in each region? What is total production in the two regions?
(b) Draw the production possibilities curves for the two regions.
(c) Which region has an absolute advantage in producing cars? Which region has an absolute advantage in producing television shows?
(d) Which region has a comparative advantage in producing cars? Which region has a comparative advantage in producing television shows?
(e) Starting with the initial levels of production, demonstrate how comparative advantage can be exploited to raise joint production of cars by 10 while leaving television show output unchanged.