Question

This is the equation for Mexico’s Production Possibility Frontier (PPF): 60=3F+2C

1. Plot the Production Possibility Frontier for Mexico

2. What is the opportunity cost of producing food in Mexico?

3. What is the opportunity cost of producing clothing in Mexico?

4. Now, use the information from USA’s Production Possibility Frontier as discussed in class. Relative to USA, what does Mexico have a comparative advantage in? In other words if Mexico were to trade with the USA, what should it specialize in? (USA’s PPF is as discussed in class is given by 50=F+2C)

5. Which products does Mexico have an absolute advantage in? How about USA?

Hints: For Q1: Solve for C when F=0, solve for F when C=0 For Q2: Use the slope method. Alternatively, solve for C when F=0 and then when F=1. How much does C drop by? This is opportunity cost for producing one unit of food. For Q3: Use the slope method. Alternatively, solve for F when C=0 and then when C=1. How much does F drop by? This is the opportunity cost for producing one unit of clothing.

Answer 1