Econ 201 1st Edition Lecture 5Outline of Last Lecture 6.Production Possibilities FrontierOutline of Current Lecture 1.Beef and wheat example.Current LectureComparative Advantage and Trade: Illustrated by the Beef and Wheat Problem (based on handout)Resource Base and Technology In this simple example the only resource of concern is agricultural land. Each country has 100 acres. The production technology is expressed by a simple set of coefficients. • Resources are 100 acres of land in each country.• Technology is represented by yield coefficients ~ productivity.– Yield coefficients also imply resource requirement per unit product.• Suppose each country uses half its land for each product:Flat: BF = 50 x 2 = 100 hwt. WF = 50 x 5 = 250 tonsHilly: BH = 50 x 1 = 50 hwt. WH = 50 x 2 = 100 tonsInterpretationThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.If Flat country devotes one acre of land to Beef production, it can produce two units (2 hwt. or 200 pounds) in one year. On the same land it could have produced 5 units (tons) of Wheat instead.Same ideas for the Hilly country, but its productivities (yields) are different. On one acre they canproduce either 1 hwt. of Beef or 2 tons of Wheat.Total outputs will be acres devoted to an activity multiplied by the appropriate coefficient.For example, if each devotes half their land (50 acres) to each activity, we have the following outputs:Flat: BF =50x2=100hwt. WF =50x5=250tons Hilly: BH =50x1=50hwt. WH =50x2=100tonsAnalysisAnswer the following questions:a. For the flat country, what is the marginal opportunity cost of wheat?b. Which country has a comparative advantage in beef production?c. If these countries were to engage in trade, which country should export wheat?Explain, briefly.d. Construct a production possibilities frontier (PPF) for each country separately. e. Construct a PPF for the countries combined.Finding Answers Marginal Opportunity Cost What is Marginal Opportunity Cost?If one more unit of Wheat is produced, how much Beef production is forgone? If one more unit of Beef is produced, how much Wheat production is
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