Question 1

Calzonia and Pizzaland both make calzones and pizza but Pizzaland chefs are less proficient than Calzonian chefs in the dough-folding process that converts pizza ingredients into calzones. Workers in Calzonia can make at most 10 calzones per four and at every level of production the opportunity cost of one calzone is one pizza. Workers in Pizzaland can make at most 12 calzones per hour and every time they decrease calzones production by 1, they can make 1.5 additional pizzas.

1. Draw graphs of the PPFs for Calzonia and Pizzaland with the quantity of pizzas measured on the vertical axis.
2. If Calzonia trades calzones for pizzas from pizzaland, what is the range of prices, in terms of pizzas per calzone that would make both countries better off trade?
3. Suppose that Pizzaland makes only pizza, Calzonia makes only calzones and the terms of trade are 1.25 pizzas from Pizzaland for each calzone from Calzonia. On the graph for part a, draw the consumption possibilities frontiers for Calzonia and Pizzaland and lable the CPFc and CFFp.

Question 2

Answer the following questions on the basis of the information provided in problem 1:

1. Which country has a comparative advantage in pizza production?
2. Which country has a comparative advantage in calzone production?
3. Which country has an absolute advantage in the production of calzones?
4. Which country has an absolute advantage in the production of pizzas?