Business/Problem Solving

ASSIGNMENT # 3

1. Draw the production possibilities graphs for Monica and Trudy. All data are in tons. Monica's production possibilities:    Trudy's production possibilities:    Based on the given data. Assume that before specialization and trade, they both chose production possibility "D." Now if each specializes according to comparative advantage, the gains from specialization and trade will be:

ANSWER: -------------------------------------------------------------------------

2. Suppose the Nation of Doodag can produce only doods and dags, and that its production possibilities schedule is as follows:

DOODS	DAGS
0	1,000
200	800
350	600
425	400
500	200
550	0

a. Construct a graph showing DOODAG’S production possibilities curve.

b. Pick a point on the diagram (label it B) that shows a combination of doods and dags that the Nation of Doodags cannot now produce.

c. Pick another point on the diagram (label it C) that shows a combination of doods and dags consistent with some idle resources.

d. Pick another point (label it D) that doodag cannot produce based on the Nation’s current fixed resources.

3.

UNITED STATES SOUTH KOREA
VCR	PHOTOCOPIER	VCR	PHOTOCOPIER
0	80	80	0
10	60	60	10
20	40	40	20
30	20	20	30
40	0	0	40

a. Draw the production possibilities of the two Nations on one grid

b. Derive the terms of trade for the two Nations.

1. USA.----------------------------------------------------------------------------------------

2. SOUTH KOREA---------------------------------------------------------------------------------

c. If VCR sells for $200 each and photocopier also sells for $200 what will be the terms of trade?

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