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(Solved): 6. Problems and Applications Q6 The following table describes the production possibilities of two c ...
6. Problems and Applications Q6 The following table describes the production possibilities of two cities in the country of Baseballia: Boston Chicago Without trade, the price of a pair of white socks (in terms of red socks) in Boston is of red socks, socks. Pairs of Red Socks per Worker per Hour Pairs of White Socks per Worker per Hour 3 5 socks. has an absolute advantage in the production of red socks, and has a comparative advantage in the production of red socks, and If the cities trade with each other, Boston will export of red socks, and in Chicago it is has an absolute advantage in the production of white has a comparative advantage in the production of white socks, and Chicago will export socks. The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities better off is of red socks per pair of white socks, and the lowest price that makes both cities better off is of red socks per pair of white socks.
Solution: => Boston opportunity cost of producting Red socks=6/3=2 white socks and that of White socks =3/6=0.5 Red socks => Chicago opportunity cost of producing Red socks =4/5=0.8 white socks and that of White socke =5/4=1.25 Red socks => So,