Country A can produce, at most, 40 olives or 20 pickles, or some combination of olives and pickles such as the 20 olives and 10 pickles it is currently producing. Country B can produce, at most, 120 olives or 60 pickles, or some combination of olives and pickles such as the 100 olives and 50 pickles it is currently producing.
a. Is there a basis for trade? If so, offer the two countries a deal they can't refuse.
b. How would your answer to a change if you knew that there were economies of scale in the production of pickles and olives rather than the production possibilities described in the question? Why? If your answer is yes, which country would you have produce which good?