25-comparative advantage exercise

25-comparative advantage exercise - Exercise: Comparative...

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Exercise: Comparative and Competitive advantage. Comm 394 - Barbara Spencer F A S T T E S T Productivity -Output per worker per week Manufacture Assembly Canada 2 2 Fiji 1/2 1 ± One unit of manufacturing and one unit of assembly are required to produce a completed test unit. 1) Assume no trade – called autarchy (or autarky) What is the optimal allocation of the 100 workers between manufacturing and assembly in each country? What is the maximum output? Answers : Optimal allocation: Fiji - produces 33.3 complete units (66.6 workers manufacture 33.3 units and 33.3 workers assemble 33.3.) . Canada- produces 100 complete units of test equipment (50 workers in Assembly and 50 in Manufacturing) Total output 133.3 units. 2) Assume that there is free trade . What is the optimal allocation of workers between manufacturing and assembly in each country? What is the maximum output? What is the pattern of trade? Hint: one country will specialize in one of the activities. Answers : - The Fijian plant should specialize in assembly. Fiji can assemble 100 units imported from Canada with its100 workers. Maximum output: 150 units. Canada manufactures 100 units (using 50 workers) for export to Fiji and manufactures another 50 units (with 25 workers) and assembles the 50 units (using 25 workers). Canada exports manufactured parts and possibly finished units and Fiji imports manufactured parts and exports finished units above the level required in Fiji. Explanation:
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25-comparative advantage exercise - Exercise: Comparative...

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