Example Long Answer Questions - Suggested Answers.pdf -...

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BUEC 342 - Example Long Answer Questions 1. Suppose that you are the manager of Excitebike, a multinational bicycle manufac- turer headquartered in Victoria, BC, Canada, and that you have been tasked with maximizing corporate bike output. Currently, you have two production facilities; one in Victoria that employs 70 workers, and one in Oaxaca, Mexico that employs 120 workers. Employment at each factory is fixed; the workers at each facility are under contract for the year and cannot be fired or moved and new workers cannot be hired. The workers at each factor can spend their time making bicycle frames or sets of wheels; one frame and one set of wheels is required to make a completed bicycle. The costs of transporting these frames and wheels between factories is negligible. The productivity of workers at each factory is as follows: Activity: Frames Wheels Factory: Canada 30 15 Mexico 5 10 a) Based on this information, does either factory have an absolute advantage in bike production? Why or why not?
b) Which factory has a comparative advantage in the production of frames? Why? Show your work.

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