Answer 1)
a) Yes, United States has an absolute advantage in production of wheat and beef. Absolute advantage takes place when one country can produce more of a good than the other country. Thus, since US can produce more wheat and beef than Argentina, it surely have an absolute advantage in the production of wheat and beef.
b) In US, the tradeoff between wheat and beef is 1/3rd of beef for every 1 unit of wheat. Thus, to produce one extra unit of wheat, US must forgo producing 1/3rd unit of a beef. Similarly, in Argentina, the opportunity cost of producing wheat is 1 unit of beef
c) In the U.S., the opportunity costs of producing a unit of beef is 3 units of Wheat. Using the same logic, in Argentina, the opportunity cost of producing a unit of beef is 1 unit of wheat.
d) A country has a comparative advantage in producing a good if its opportunity cost to produce that good is lower than the other country’s. Thus, here, US has comparative advantage in producing Wheat as its opportunity cost of producing wheat is less than that of Argentina. Similarly, Argentina has a comparative advantage in producing Beef.
Answer 2:
a) Most musical wind instruments in the United States are produced by more than a dozen factories in Elkhart, Indiana.
Answer: External Economies of Scale: When many firms operate on a collective basis in one location, they can experience reduced cost from a variety of specialized services which are necessary for daily operations, input market and labor
(b) Toyota is the only one firm that own the technology which will help to decrease the cost of hybrid car production.
Answer : Internal Economies of Scale: Toyota is a big car manufacturer in the world and all the manufacturing process is completed under large facilities with computerized process. Thus, with the given technology, marginal cost of each hybrid car will be small, impying that the firm face decreasing average cost curves.
