Question

Suppose that France and Germany both produce wine and schnitzel. The table below shows combinations of the goods that each country can produce in a day.

France		Germany
Wine​ (Bottles)	Schnitzel​ (Kilograms)	Wine​ (Bottles)	Schnitzel​ (Kilograms)
0	12	0	25
1	9	1	20
2	6	2	15
3	3	3	10
4	0	4	5
		5	0

Suppose that France is currently producing 1 bottle of wine and 9 kilograms of schnitzel and Germany is currently producing 3 bottles of wine and 10 kilograms of schnitzel.​ Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then and then trade 3 bottles of wine for 11 kilograms of schnitzel.

After specialization and​ trade, France gains by consuming the same amount of wine and ???? additional​ kilogram(s) of schnitzel.

After specialization and​ trade, Germany gains by consuming the same amount of wine and ?????? additional​ kilogram(s) of schnitzel.

Answer 1

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Germany;

5 bottles of wine = 25 kgs of Schnitzel

1 bottle of wine = 25/5 = 5 kgs of Schnitzel

Opportunity cost of 1 bottle of wine is 5 kgs of Schnitzel

France;

4 bottles of wine = 12 kgs of Schnitzel

1 bottle of wine = 12/4 = 3 kgs of Schnitzel

Opportunity cost of 1 bottle of wine is 3 kgs of Schnitzel

France has comparative advantage in the production of wine while Germany has comparative advantage in the production of Schnitzel.

France would produce only wine and Germany would produce only Schnitzel.

Total production of wine by France = 4 bottles

Total production of Schnitzel by Germany = 25 kgs

Trade ; 3 bottles of wine = 11 kgs of Schnitzel

France: Wine = 4 - 3 = 1 bottle

Schnitzel = 0 + 11 = 11 kgs

Germany: Wine = 0 + 3 = 3 bottles

Schnitzel = 25 - 11 = 14 kgs

Additional Schnitzel consumption by France = 11 - 9 = 2 kgs

Additional Schnitzel consumption by Germany = 14 - 10 = 4 kgs

Answer 2

SOLUTION :

Wine production comparison :

France :

Opportunity cost of 1 wine is = (12 - 9) = 3 kg Schnitzel

Germany :

Opportunity cost of 1 wine is = (25 - 20) = 5 kg Schnitzel

So, France has comparative advantage in producing wine.

Schnitzel production comparison :

France :

Opportunity cost of 1 kg schnitzel = 1/(12 - 9) = 1/3 wine

Germany :

Opportunity cost of 1 kg schnitzel = 1/(25 - 20) = 1/5 wine

So, Germany has comparative advantage in producing schnitzel.

Current capacity :

France :

wine = 1 and schnitzel = 9 

It is advantageous to produce wine only for France.

So, France can produce wine = 1 + 9/3 = 4 units.

Germany :

3 wine and 10 kg schnitzel.

It is advantageous to produce schnitzel only for Germany.

So, Germany can produce schnitzel = 10 + 3/(1/5) = 25 kg.

Trade :

France sell 3 bottles of wine to Germany in exchange of 11 kg of schnitzel.

Status after trade :

France have after trade = (4-3) = 1 wine and 11 kg of schnitzel . 

Bettered by (11-9) = 2 kg of schnitzel.

Germany have after trade = 3 wines and 14 kg of schnitzel. 

Bettered by (14 - 10) = 4kg of schnitzel.

(ANSWER).