- The table below shows the output per week of two manufacturers, Serena and Venus. They can either devote their time to making Yogurt or making Ice Cream.
The output per week of two manufacturers
Serena Venus
Yogurt: 750 Gallons 800 Gallons
Ice Cream: 950 Gallons 900 Gallons
Answer the following questions with an explanation of why you determined the answer:
- Who has the absolute advantage in making Yogurt? Explain why.
- Who has the absolute advantage in making Ice Cream? Explain why.
- What is Venus’s opportunity cost of making a Yogurt? Explain why.
- What is Serena’s opportunity cost of making a Yogurt? Explain why.
- What is Venus’s opportunity cost of making Ice Cream? Explain why.
- What is Serena’s opportunity cost of making Ice Cream? Explain why.
- Who has the comparative advantage in making Yogurt? Explain why.
- Who has the comparative advantage in making Ice Cream? Explain why.
- You and your neighbor are the only people in the world that produces cashews and mushrooms. You do not engage in trade with each other. On your own, you can each produce the following per day:
Cashews and Mushrooms Production
You Neighbor
Cashews Mushrooms Cashews Mushrooms
Only gather cashews: 12 pounds 0 pounds 5 pounds 0 pounds
Only gather mushrooms: 0 pounds 6 pounds 0 pounds 5 pounds
Right now, you each split your time between gathering each product. You currently gather and consume eight pounds of cashews and two pounds of mushrooms, while your neighbor is gathering and consuming three pounds of cashews and one pound of mushrooms. Show numerically how specialization and trade with each other can make you better off. Who specializes in the production of each product, and what trade could you then make with each other that would benefit both of you? Explain your answers.
