Solution to homework 1

Solution to homework 1 - Econ 200 Autumn 2007 Ohio State...

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Econ 200 Autumn 2007 Ohio State University Homework One Suggested Solution Problem 1: chapter 2, pp51-52 # 6: a, b, c, d, and e only a. Tom’s opportunity cost of producing a ball is 4 bats/40 balls, or 0.10 bats per ball. b. Tessa’s opportunity cost of producing a ball is 4 bats/80 balls, or 0.05 bats per ball. c. Tessa has the comparative advantage in producing balls because her opportunity cost of a ball is lower than Tom’s opportunity cost. d. Both Tom and Tessa gain from the specialization and trade. Tom specializes in producing bats and Tessa specializes in producing balls. Tom produces 4 bats per hour and Tessa produces 80 balls, for total production of 4 bats and 80 balls. If neither specialized and both spent half their time producing balls and the other half producing bats, Tom would produce 2 bats and 20 balls and Tessa would produce 2 bats and 40 balls. The total production would be 4 bats (2 from Tom and 2 from Tessa) and 60 balls (20 from Tom and 40 from Tessa). Specialization means that Tom can trade 2 bats for 30 balls and so have 2 bats and 30 balls, 10 more balls than the case without specialization and trade. Tessa would have 2 bats and 50 balls, (also) 10 more balls than the case without specialization and trade. e. Tessa has the comparative advantage in producing bats. Tom’s opportunity cost of a bat is 40 balls/4 bats, or 10 balls per bat. Tessa’s opportunity cost of a bat is 80 balls/20 bats or 4 balls per bat. Tessa has the comparative advantage in producing bats
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