Chile and Argentina each produce jellybeans and peanut butte

Chile and Argentina each produce jellybeans and peanut butter using labor as their only resource. Each country has 1,000 hours of labor. In Chile, 1 hour produces 1 pound of jellybeans and 2 hours produce 1 pound of peanut butter. In Argentina, 1 hour produces 1 pound of jellybeans and 3 hours produces 1 pound of peanut butter. When they do not trade with each other, Chile consumes 600 pounds of jellybeans and 200 pounds of peanut butter, and Argentina consumes 400 pounds of jellybeans and 200 pounds of peanut butter.

1) What is the MPL of peanut butter in Argentina, for 1 hour of labor?

2) Which country has an absolute advantage in jellybean production? Why?

3) What is the opportunity cost of jelly beans in Chile?

Solution

Lets first summarize the information in a table:

1) MPL represents marginal product of labor. As argentina takes 3 hours of labor to produce 1 pound of peanut butter. Similarly in 1 hour of laboour it will produce 1/3 pounds of peanut butter. Thus MPL is 1/3.

2) Both the countries consume same hours of labor to produce 1 pound of jelly beans. Thus MPL is same of both the countries. Hence neither country has absolute advantage in production of jelly beans.

3) It takes 1 hour to produce jelly beans in Chile . And in this 1 hour it can also produce 1/2 pound of peanut butter thus 1/2 is opportunity cost of jelly beans in Chile.