Table A shows the hypothetical maximum amount of autos or steel that Japan and South Korea can produce should they use all the factors of production available in their economy with the best technology at their disposal.

Table A: Hypothetical Auto and Steel Production

Japan South Korea

Autos 1500 800

Steel (tons) 500 1200

Assume that production of autos and steel occur under constant cost conditions. Now suppose that in the absence of trade, Japan produces and consumes 600 of autos and 300 tons of steel. Meanwhile, South Korea produces and consumes 400 autos and 600 tons of steel. Using this information as well as the information in Table A answer the following questions:

(a)Determine the marginal rate of transformation (MRT)of steel into autos for Japan and South Korea.

(b) In the context of the principle of comparative advantage, should the two countries specialize? If so, which product should each nation produce? Will the extent of specialization be complete (i.e., will each country will use all their resources to specialize in the production of one good?)

(c) Compared to the output of autos and steel that arise in the absence of trade, does specialization induce an increase in overall output? If so, by how much?