David lee aemecon 2300 5 of lecture 3 first consider

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Unformatted text preview: 5 of Lecture 3 ⇒ First, consider what happens if marginal costs are constant – what does the Production Possibility Frontier look like? Linear PPF ⇒ Why? Linear PPF → Has an unchanging slope → constant MRT → constant MC ⇒ Question: What happens when we allow trade and specialization with constant (for now) marginal costs? Prof. David Lee AEM/ECON 2300 6 of Lecture 3 GAINS FROM TRADE WITH CONSTANT MARGINAL COSTS Each country produces and consumes: Computers U.S. 20 10 Brazil Autarky: Coffee 15 20 ⇒ Each country produces and consumes along a linear (constant marginal cost) Production Possibility Frontier Prof. David Lee AEM/ECON 2300 7 of Lecture 3 AUTARKY U.S. Brazil Computers Computers 40 40 30 30 A 20 10 20 20 B 10 PPFUS 10 PPFBR 30 40 Coffee 10 20 30 U.S. produces & consumes at A; Brazil at B...
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