$(28$ Points$)$ The following are production possibilities tables for Mexico and the United States. Also,

for simplicity, suppose that the labor resources in the United States and Mexico are of equal size.

Assume that before specialization and trade, the production and consumption for Mexico is

alternative $C$ and for the United States is alternative T$.$

Table $1$: Mexico's Production Possibilities Table $($in Tons$)$

Table $2$: U$.$S$.$ Production Possibilities Table $($in Tons$)$

A$.(2$ Points$)$ Draw the production possibility frontiers $($PPF$)$ for each country in the absence of

trade.

B$.(2$ Points$)$ Which country has an absolute advantage in the production of apples?

strawberries?

C$.(4$ Points$)$ What is the opportunity cost of the two products within the two countries?

D$.(2$ Points$)$ Which country has a comparative advantage in the production of apples?

strawberries?

E$.(4$ Points$)$ Are opportunity costs such that the two areas should specialize? If so$,$ what

product should each produce?

F$.(2$ Points$)$ What is the total gain in apples' and strawberries' output that would result from

such specialization?

G$.(2$ Points$)$ What are the limits of the terms of trade?

H$.(4$ Points$)$ Suppose actual terms of trade are $1$ ton of apples for $3\mathrm{.}5$ tons of strawberries and

$35$ tons of apples are exchanged for $10$ tons of strawberries. Use this information to draw a

trading possibility curve along with the PPFs for each country.

I. $(4$ Points$)$ What are the gains from specialization and trade for each country?

J$.(2$ Points$)$ Explain why this illustration allows you to conclude that specialization according to

comparative advantage results in more efficient use of world resources.