2. Comparative and absolute advantage David and Morgan are farmers. Each one owns a 12acre plot of land. The following table shows the amount of zucchini and watermelon each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing zucchini or watermelon or to produce zucchini on some of the land and watermelon on the rest. Zucchini Watermelon (Pounds per acre) (Pounds per acre) David 12 4 Morgan 36 9 On the following graph, use the blue line (circle symbol) to plot David's production possibilities frontier (PPF), and use the purple line (diamond symbol) to plot Morgan '5 PPF. 120 O 108 David's PPF 96 84 72 Morgan's PPF 60 WATERMELON (Pounds) 48 36 24 12 60 120 180 240 300 360 420 480 540 600 ZUCCHINI (Pounds) has an absolute advantage in the production of zucchini, and has an absolute advantage in the production of watermelon. David's opportunity cost of producing 1 pound of watermelon is pounds of zucchini, whereas Morgan's opportunity cost of producing 1 pound of watermelon is pounds of zucchini. Because David has a opportunity cost of producing watermelon than Morgan, has a comparative advantage in the production of watermelon, and has a comparative advantage in the production of zucchini.5. The price of trade Suppose that Croatia and Liechtenstein both produce olive oil and liquor. Croatia's opportunity cost of producing a case of liquor is 4 crates of olive oil while Liechtenstein's opportunity cost of producing a case of liquor is 12 crates of olive oil. By comparing the opportunity cost of producing liquor in the two countries, you can tell that Y has a comparative advantage in the production of liquor and V has a comparative advantage in the production of olive oil. Suppose that Croatia and Liechtenstein consider trading liquor and olive oil with each other. Croatia can gain from specialization and trade as long as it receives more than V of olive oil for each case of liquor it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as long as it receives more than V of liquor for each crate of olive oil it exports to Croatia. Based on your answer to the last question, which of the following prices of trade (that is, price of liquor in terms of olive oil) would allow both Liechtenstein and Croatia to gain from trade? Check all that apply. [3 1 crate of olive oil per case of liquor D 16 crates of olive oil per case of liquor D 7 crates of olive oil per case of liquor D Z crates of olive oil per case of liquor