Home has 600 units of labor available. It can produce two goods, apples (QA) and bananas (QB). The unit labor requirement in apple production is 3, while it is 2 in banana production.
a. Graph Home’s production possibilities frontier with the production of apples on the x-axis.
b. What is the opportunity cost of apples in terms of bananas?
c. In the absence of trade and assuming that there is nonzero production of both goods, what is the world price of apples in terms of bananas? Why?
Home is described as above. There is now another country, Foreign, with a labor force of 800. Foreign’s unit labor requirement for applies is 10 and it is 2 for bananas.
a. Graph Foreign’s production possibilities frontier with the production of apples (QA*) on the x-axis. What is the opportunity cost of apples in terms of bananas in Foreign?
b. Draw the world relative supply curve for ratio of apples to bananas.