Question

4Snapchat Done Microeconomic Principles Winter... Dr. Snyder 1. International Trade (15) A What is an absolute advantage? What is a comparative advantage? (5) B Give an example where you have an absolute but not a comparative advantage (5) C. Why should we specialize and trade? (5) 2. Monopoly vs. Perfect Competition (PC) (40) A GRAPH a comparison of the short-run and long-run profits, price, and quantity of a Monopoly and a PC firm. (20) profits? Why? (5) What are the implications of each of these n Which type of market structure generates greater c Give 5 Characteristics of a PC firm and monopoly. characteristics. (10) D Give a real life example of a monopoly and a PC firm. 2. Oligopoly (25) A What is an oligopoly? Give an example. (5) a Give some of the characteristics of an oligopoly. (5) c Assuming that there are only 2 cell phone companies in the world, iPhone and Samsung. what is the (Nash) Equilibrium) or price that each company in the following matrix will charge? At that price, what profits do cach company get? Note that the first number listed in bold is the profit for iPhone and the second number listed that is italicized is the profit for Samsung. (10) D. Is there a way that iPhone and Samsung could collude to increase profits? What might prohibit this collusion? (5) 3. Monopolistic Competitive (15) A GRAPH the long-run profit of a monopolistically competitive firm. (5) firms generate a long-run profit? (5) c Why is a monopolistic competition said to be

Answer 1

1. A) A country or a person is said to have Absolute advantage in the production of a good if it can produce the good more efficiently(that is it can produce more of that good or service using same amount of resources) than other nations or individuals.

A country or a person is said to have comparative advantage in the production of a good if it's opportunity cost of producing that good is lower than opportunity cost of production of the same good for other countries.

B) Suppose using same amount of time you can produce either 6 pancakes or read 3 books, and your friend can either produce 5 pancakes or 1 book.

Your opportunity cost of producing 1 pancake is (3/6) = 1/2 book and opportunity cost of reading 1 book is 2 pancakes.

On the other hand, your friend's opportunity cost of producing 1 pancake is reading (1/5) book and opportunity cost of reading 1 book is 5 pancakes.

Clearly, your friend has comparative advantage in producing pancake because his opportunity cost of producing one pancake is less than yours (that is, (1/5) < (1/2)). But you have an absolute advantage in the production of pancakes because you can produce more pancakes than your friend does using same amount of time.

C) According to the Ricardian theory of comparative advantage, we should specialize in the production in which we have comparative advantage and then trade, so that we become more productive and benefit from the trade by consuming at a point which lies beyond the production possibility curve.