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Honduras and El Salvador both produce coffee and sugar cane. Honduras can produce 10 million bags of coffee or 8 million metric tons of sugar
Honduras and El Salvador both produce coffee and sugar cane. Honduras can produce 10 million bags of coffee or 8 million metric tons of sugar cane. With the same resources, El Salvador can produce 4 million bags of coffee or 6 million tons of sugar cane. Suppose both countries face constant opportunity costs in production.
- Who has an absolute advantage at producing coffee? At producing sugar cane?
- For Honduras, what is the opportunity cost of producing 1 ton of sugar cane, in terms of coffee? (enter the number only)
- For El Salvador, what is the opportunity cost of producing 1 bag of coffee, in terms of metric tons of sugar cane? (Again, enter the number only.)
- Who has a comparative advantage at producing coffee? At producing sugar cane?
- For both countries to gain from trade, what must be the price range for 1 bag of coffee? Between ____ and ____
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