1. Ashland and Bravia are two countries that produce two goods: solar panels and corn. The table below shows the maximum daily production of each good for each country if they devote all their resources to that good.
Assume that both countries have constant opportunity costs in the production of both goods.
The countries are trading partners.
Maximum Daily Production
Country | Solar Panels | Corn |
|---|---|---|
Ashland | 20 | 60 |
Bravia | 40 | 40 |
Draw a correctly labeled graph of the production possibilities curve for Ashland, with solar panels on the horizontal axis and corn on the vertical axis. Show each of the following.
The numerical values of the horizontal and vertical intercepts
The production possibilities curve, labeled PPC
A point labeled X that represents an inefficient use of resources
A point labeled Y that is currently unattainable
Calculate the opportunity cost of producing one unit of solar panels in Ashland. Show your work.
Assume the two countries specialize based on comparative advantage.
Identify which country has the comparative advantage in the production of solar panels.
Explain your answer to part (C)(i) using data from the table.
Identify a specific number of units of corn that could be traded for one unit of solar panels that would be mutually beneficial to both countries.
Assume that Ashland invents a new fertilizer that doubles the productivity of corn production but has no effect on solar panel production.
On your graph in part A, draw the new production possibilities curve for Ashland, labeled PPC2.
Will Ashland's opportunity cost of producing one unit of solar panels increase, decrease, or remain the same? Explain.
Required Graph Drawing
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