Question

"Suppose that a worker in Lago can produce either 5 units of oats or 20 pounds of tuna per year, and a worker in Abuta can produce either 20 units of oats or 5 pounds of tuna per year. There are 20 workers in each country. No trade occurs between the two countries. Lago produces and consumes 50 units of oats and 200 pounds of tuna per year while Abuta produces and consumes 200 units of oats and 50 pound of tuna per year. If trade were to occur, Lago would trade 60 pounds of tuna for 60 units of oats. If Lago now completely specializes in tuna production, how many pounds of tuna could it now consume along with the 60 units of imported oats?"

Answer 1

140 pounds of tuna

Step-by-step explanation:

Lago

• opportunity cost of producing 1 unit of oat = 20 / 5 = 4 pounds of tuna
• opportunity cost of producing 1 pound of tuna = 5 / 20 = 0.25 units of oat

Abuta

• opportunity cost of producing 1 unit of oat = 5 / 20 = 0.25 pounds of tuna
• opportunity cost of producing 1 pound of tuna = 20 / 5 = 4 units of oat

Lago should produce tuna while Abuta should produce oat. If they specialize:

• total production of tuna = 20 x 20 = 400 pounds
• total production of oat = 20 x 20 = 400 units

Lago trades 60 pounds of tuna in exchange for 60 units of oat, so it will have 140 pounds of tuna and 60 units of oat in total.