Problem
Suppose the Home country has a fixed labour supply of 3600 hours and the Foreign country has 2400 hours of labour supply. Each country produces only two goods: bananas and coconuts. The unit labour requirement in bananas is 9 hours in Home and 15 in Foreign, while the unit labour requirement in coconuts is 6 hours in Home and 3 in Foreign.
1. Graph Home's production possibilities frontier on one graph (with coconuts on the x-axis) and Foreign's production possibilities frontier on another graph. Remember to label!
2. What is the opportunity cost of bananas in terms of coconuts for each country?
3. In autarky, what will be the price of bananas in terms of coconuts in each country? Why?