A) Absolute advantage refers to a country's ability to produce a good using fewer resources or at a higher productivity level than another country. In this case, Argentina has an absolute advantage in coffee and sugar production. This is because its productivity levels are higher than Brazil's for both goods.
B) Comparative advantage, on the other hand, considers the opportunity cost of producing something relative to another good. To determine comparative advantage, we need to compare production opportunity costs between the two countries. Opportunity cost is the value of the next superior alternative given up to produce a good.
For Argentina, the opportunity cost of producing one unit of coffee is 1.5 units of sugar (150/200), while for Brazil, it is 1 unit of sugar (170/170). Therefore, Argentina has a comparative advantage in coffee production because it has a lower opportunity cost of producing coffee than sugar.
Similarly, for Argentina, the opportunity cost of producing one unit of sugar is 2/3 (2 divided by 3) units of coffee, while for Brazil, it is 1 unit of coffee. Hence, Brazil has a comparative advantage in sugar production because it has a lower opportunity cost of producing sugar than coffee.
C) Based on comparative advantage, Argentina will specialize in coffee production, as it has a lower opportunity cost for producing coffee than sugar. Brazil, on the other hand, will specialize in sugar production, as it has a lower opportunity cost for producing sugar than coffee. Through international trade, Argentina can export coffee to Brazil, and Brazil can export sugar to Argentina. This allows both countries to benefit from specialization and trade, maximizing their overall production and consumption possibilities.