Remy and Luca produce cups of coffee and sachets of sugar. Luca can produce 8 cups of coffee in one hour or 2 sachets of sugar in one hour. Remy can produce 2 cups of coffee in one hour or 2 sachets of sugar in one hour. Both Remy and Luca work 10h per day.

i.Explain who has the absolute advantage in the production of which of the two goods.

ii.Calculate the opportunity cost of producing coffee and sachets of sugar for Remy and Luca. Explain who has the comparative advantage in the production of which of the two goods.

iii.Both Remy and Luca like their cups of coffee with one sachet of sugar. What is the maximum number of combinations of 1 cup of coffee with 1 sachet of sugar can each consume in a day if they don't trade?[2 marks]

iv.If Remy and Luca were allowed to trade, would either of them fully specialise in the production of one of the two goods.