Jamaica has absolute advantage in bananas; Puerto Rico has absolute advantage in sugarcane. Jamaica's opportunity cost of one banana is 0.5 sugarcane; Puerto Rico's opportunity cost of one sugarcane is 1.25 bananas. Jamaica has comparative advantage in bananas; Puerto Rico has comparative advantage in sugarcane. They should trade based on comparative advantage for mutual benefit.
a. Jamaica has the absolute advantage in bananas because it can produce more bananas (100 units) compared to Puerto Rico (160 units). Puerto Rico has the absolute advantage in sugarcane as it can produce more sugarcane (40 units) compared to Jamaica (50 units).
b. Jamaica's opportunity cost of producing one unit of bananas is 0.5 units of sugarcane (50 sugarcane/100 bananas), and Puerto Rico's opportunity cost of producing one unit of sugarcane is 1.25 units of bananas (160 bananas/40 sugarcane).
c. Jamaica has the comparative advantage in bananas because it has a lower opportunity cost of producing bananas. Puerto Rico has the comparative advantage in sugarcane due to its lower opportunity cost of producing sugarcane.
d. Yes, these countries should trade. Jamaica should specialize in producing bananas, and Puerto Rico should specialize in producing sugarcane. By doing so, they can exchange goods based on comparative advantage, leading to a more efficient allocation of resources and mutual benefit.
The complete question is:
The following figures represent the amount that can be produced with a fixed amount of factor inputs.
Bananas Sugarcane
Jamaica 100 50
Puerto Rico 160 40
a. Which country has the absolute advantage in bananas? Which country has the absolute advantage in sugarcane? Explain your answer?
b. What is Jamaica's opportunity cost for producing one unit of bananas? What is Puerto Rico's opportunity cost for producing one unit of sugarcane?
c. Which country has the comparative advantage in bananas? Which country has the comparative in sugarcane? Explain your answer?
d. Should these countries trade? If so, how should they specialize and why?