Question

Argentina can produce either 20 units of cloth or 2 units of wine, while Chile can produce either 24 units of cloth or 12 units of wine. If each country specializes in the good for which it has comparative advantage, the total output by the two countries will be:

Answer 1

Their combined production should be 20 clothes and 12 wines.

Step-by-step explanation:

Argentina's opportunity cost to produce 1 unit of cloth = 0.1 wine

Argentina's opportunity cost to produce 1 unit of wine = 10 clothes

Chile's opportunity cost to produce 1 unit of cloth = 0.5 wine

Chile's opportunity cost to produce 1 unit of wine = 2 clothes

Since Argentina' opportunity cost to produce clothes is lower, then it should specialize int he production of clothes. While Chile should specialize in the production of wine. Their combined production should be 20 clothes and 12 wines.