Question

Table 3-23 Assume that the farmer and the rancher can switch between producing pork and producing tomatoes at a constant rate. Labor Hours Needed to Make 1 Pound of Pounds Produced in 24 Hours Pork Tomatoes Tomatoes Pork Farmer Rancher 4 Refer to Table 3-23. Assume that the farmer and the rancher each has 24 labor hours available. If each person spends all his time producing the good in which he has a comparative advantage, then total production is

Answer 1

Solution:

Given the production levels of Farmer and Rancher for pork and tomatoes, we can find the opportunity costs as follows:

Opportunity cost and comparative advantage are related concepts. Opportunity cost is simply the amount of a good given up in order to increase another good by 1 unit.

Then, for farmer:

Either 4 pounds of pork can be produced or 8 pounds of tomatoes. So, to increase pork production by 1 pound, 2 pounds of tomatoes are given up. Thus,

Opportunity cost of pork production = 2 pounds of tomatoes

Opportunity cost of tomatoes production = 4/8 = 1/2 pound of pork

Similarly, for rancher:

Opportunity cost of pork production = 6/6 = 1 pound of tomatoes

Opportunity cost of tomatoes production = 6/6 = 1 pound of pork

Clearly, the opportunity cost of pork production is lower for Rancher (1 < 2), indicating that Rancher has comparative advantage in pork production. Further, opportunity cost of tomatoes is lower for farmer (1/2 < 1), indicating that farmer has comparative advantage in tomatoes production.

Thus, Rancher will produce only pork and farmer will produce only tomatoes, and so the total production will be = 8 pounds of tomatoes and 6 pounds of pork.