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Suppose that Rob and Big both raise animals and sell them
Suppose that Rob and Big both raise animals and sell them. Because Rob and Big have different talents, they have varying abilities to raise these animals. In 1 day, Rob can produce either 10 cows or 20 pigs. In 1 day, Big can produce either 9 cows or 36 pigs. Assume that Rob and Big decide to specialize completely and trade with one another. Over the course of 1 month (30 days), Rob will produce _____ cows and _____ pigs while Big will produce _____ cows and _____ pigs.
Expert Solution
Rob has a comparative advantage in cows and Big has a comparative advantage in pigs because Rob's opportunity cost of producing 1 cow is 20/10 = 2 pigs and Big's opportunity cost of producing 1 cow is 36/9 = 4 pigs. This means that Rob will specialize in cows and Big will specialize in pigs. Over a 30 day period Rob produces 10 * 30 = 300 cows and 0 pigs and Big produces 36 * 30 =1080 pigs and 0 cows, if they only produce the good that they specialize in. If they trade Rob and Big both end up with half the cows produced and half the pigs produced, which is 150 cows and 540 pigs . This is a better combination than they could have produced on their own because Rob has extra pigs and Big has extra cows.
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