Unit labor requirements per one unit of good Calculate oppor

Unit labor requirements per one unit of good. Calculate opportunity cost for each good and each country. Which country has comparative advantage in producing Good X? Which country has comparative advantage in producing Good Y?

Solution

Part a.

For Good X:

Home country has no opportunity cost.

Foreigh country has the opprtunity cost in terms of the wage rate of (4 - 1) = 3 Labors, which they could have used in the Home country.

For Good Y:

Home country has no opportunity cost.

Foreigh country has the opprtunity cost in terms of the wage rate of (12 - 3) = 9 Labors, which they could have used in the Home country.

Part b.

Home country has the comparative advantage in producing Good X. This is because is has less unit labor requirement for producing the good. Therefore, the production cost is less.

Part c.

Home country has the comparative advantage in producing Good X. This is because is has less unit labor requirement for producing the good. Therefore, the production cost is less.