Problems and Applications 35 Related to Solved Problem 93 on

Problems and Applications 3.5 [Related to Solved Problem 9.3 on page 337] The fol- lowing table shows the hourly output per worker in two industries in Chile and Argentina: Output per Hour of Work Hats 12 Beer Chile Argentina 4 Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the production of beer. a. rl. abslute adinnage chile achile has an a te adly

Solution

(a) Chile has absolute advantage in both the goods because it can produce both goods in lower time.

Cost of labor (in minutes) for one unit

(b)Opportunity cost:

Chile has comparative advantage in production of hat (0.5<2) and argentina has comparative advantage in production of beer.

(c)After trade,Chile would import beer and export hat.

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	PER HAT	PER BEER
CHILE	60/12=5 min	60/6=10 min
ARGENTINA	60/3=20 min	60/4=15 min