Use the information in the table on labor productivities in France and Germany to answer questions a

Question:

Use the information in the table on labor productivities in France and Germany to answer questions a through f.

a. Which country has an absolute advantage in cheese? In cars?
b. What is the relative price of cheese in France if it does not trade? In Germany?
c. What is opportunity cost of cheese in France? In Germany?
d. Which country has a comparative advantage in cheese? In cars? Explain your answer.
e. What are the upper and lower bounds for the trade price of cheese?
f. Draw a hypothetical PPC for France and label its slope. Suppose that France follows its comparative advantage in deciding where to produce on its PPC. Label its production point.
If the trade price of cars is 5 kilograms of cheese per car, draw a trade line (CPC) showing how France can gain from trade.

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...