rning Jum Map pling Learning The following table shows the t

rning Jum Map pling Learning The following table shows the tons of steel or number of computers a worker can produce per week in Germany and South Korea. Use this table to answer the question Steel Desktop Computer Germany South Korea4 rmany should specialize in computer production, export computers, and import steel. produce both goods because it has an absolute advantage in the production of both goods. O O specialize in steel production, export steel, and import computers O produce both goods because neither country has a comparative advantage. Previous NetSave And Ext ll

Solution

(1) Option (C)

We compute Opportunity costs as follows.

For Germany,

OC of Steel = 2/9 Desktop = 0.22 Desktop

OC of Desktop = 9/2 Steel = 4.5 Steel

For S. Korea,

OC of Steel = 2/4 Desktop = 0.5 Desktop

OC of Desktop = 4/2 Steel = 2 Steel

Since Germany can produce Steel at a lower OC than S.Korea can (0.22 < 0.5), Germany ahs comparative advantage in steel, and should specialize in and export Steel, and import Desktop.

(2) Technology is held constant.

A production function is drawn assuming technology remains unchanged.

(3) There is no information about Diminishing marginal returns to capital

Production function is decreasing as more units of Capital per labor are added, signifying diminishing marginal product of capital per labor. But that does not reveal any information regarding diminishing or increasing returns to absolute Capital.