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.
productivity of workers at each factory is as follows:
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.