calculating opportunity costs, production possibility
There are five exercises in this solution set. The problem set is attached. For convenience sake, I am providing the question in Exercise 1: Use the following production possibility tables for war goods and civilian goods.
Type of Production A B C D E
Automobiles 0 2 4 6 8
Missiles 30 22 18 10 0
If the economy is at point C, what is the cost of one more automobile? What is the cost of one more missile?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/economics/economic-history-and-theory/calculating-opportunity-costs-production-possibility-7h26
...being (4-2)/(22-18)=0.5. The cost of producing one more missile is .5 automobiles.
The cost of producing a Toyota in the U.S. is 18000/16000 or 9/8 the cost of a Chevrolet. The cost of producing a Toyota in Japan is 1000000/500000 or 1/.5 or twice the cost of a Chevrolet. Therefore, the opportunity cost of producing Toyotas in the U.S. is 1.125 or 9/8 of a Chevrolet and the opportunity cost of producing Toyotas in Japan is 2 Chevrolets. (Note: because the opportunity cost is lower in the U.S., the U.S. should produce Toyotas and Japan should produce Chevrolets)
In order to maximize total output, each country should produce the good for which it has comparative advantage. The opportunity cost for each country in the production of each good must be calculated first in order to ...