Remy and Luca produce cups of coffee and sachets of sugar. Luca can produce 2 cups of coffee in 1h or 2 sachets of sugar in 1h. Remy can produce 1 cups of coffee in 1h or 4 sachets of sugar in 1h. Both Remy and Luca work 10h per day.

i.Explain who has the absolute advantage in the production of which of the two goods.[2 mark]

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.[2 marks]

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.[3 marks] Note:this is a relatively difficult question. You may want to solve the rest of the exam before and come back to it at the end of the test.