Hi,

I am trying to study for an exam and i found this question that i can't seem to be understanding really well. Thanks

08A. Individual A has an absolute advantage over individual B in the production of goods M and N.See the production matrix at the end of this question.The relevant substitution

ratios for the production of good N are: M=5/7N and M=10/8N. Individual A should produce good M.Why?Production Matrix:

M N

A 5 hrs. 7 hrs.

B 10 hrs. 8 hrs.

a.)Individual A may produce either good M or N because no comparative advantage exists. It does not matter whether or not one produces one of the goods in a social division of labor or in an isolated labor setting.

b.)Because (N=7/5M) > (N=8/10M) individual A has a comparative advantage in the production of good M and therefore should produce M.

c.)Because [(M=5/7N) + (M=10/8N)] > [(N=7/5M) + (N=8/10M)] individual A should produce good M.

d.)Because (N=7/5M) < (M=5/7N) individual A should produce good M.

08B. With the same production matrix as in the immediately preceding problem, individuals A and B have a choice whether or not to participate in a social division of labor in which each individual, based on comparative advantage, produces one of the two goods over a time period of 120 hours.If they choose not to participate in the social division oflabor, each individual will devote 60 hours to the production of good M and 60 hours to the production of good N in isolation.Individuals A and B decide to participate in asocial division of labor based on comparative advantage because:

a.)(24M + 15N) > (12M + 17.14N).

b.)(12M + 17.14N) > (18M + 16.07N).

c.)(24M + 15N) > (18M + 16.07N).

d.)all of the above are correct inequalities.

08C.Should no comparative advantage exist between two individuals, or countries,

a.)the productivity of the social division of labor always is greater than the

productivity of isolated labor.

b.)the productivity of isolated labor always is greater than the productivity of the social division of labor.

c.)one cannot say whether or not the productivity of the social division of labor is greater than the productivity of isolated labor or vice versa.The mathematical inequality used in deciding this matter reduces to an equality, implying one approach is as productive as the other.

d.) None of the above