4 ProductWars Production Possisiltles Rice 750 50 300 150 Co

4. ProductWars Production Possisiltles Rice 750 50 300 150 Coen 0 100 10 200 20 Wats at\'s Production Possibilities Product A Rice 2,500 2,000 1,500 1,000 00 Corm100 200 300 400 00 Refer to the data above. Which of the follewing statements about the two nations is conect based on the princie of compartive advantage O Xat shouild specialize in the preduction of con O Wet should specialize in the production of rice O Xat has a comparive advantage in the production of rice ?xat has ? comparative advantage inthe prodes n ofcom

Solution

Using all of its resources, Wat can either produce 750 units of Rice or 250 units of corn. That means to produce 750 units of rice, Wat needs to sacrifice 250 units of corn. Therefore, to produce 1 unit of rice, they need to sacrifice (250/750) = 1/3 unit of corn.

In Wat, opportunity cost of producing 1 unit of rice is (1/3) unit of corn.

Similarly for Xat, opportunity cost of producing 1 unit of rice is (500/2500) = (1/5) unit of corn.

This calculation shows that xat has comparative advantage in production of Rice [because, (1/5) < (1/3)]. Therefore, Wat has comparative advantage in production of the other good i.e. corn [ because opportunity cost of producing corn in Wat < o.c. of producing corn in xat, i.e. 3<5 ]. If they trade, they will specialize in the production of good in which they have comparative advantage. Therefore, Wat will specialize in corn production and Xat will specialize in rice production.

Answer-option C