Assume there are only two countries in the world, and the two countries face the following production possibilities frontiers

Assume there are only two countries in the world, and the two countries face the following production possibilities frontiers

3. Assume there are only two countries in the world, and the two countries face the following production possibilities frontiers. Further assume that the two countries produce popcorn and peanuts.

(see below for questions)

Country A’s Production Possibilities Frontier Country B’s Production Possibilities Frontier

A. Assume that country A and country B decide to use half of the resources in the production of each good. Indicate the points of the maximum output of each good on the graphs for each country as point A under such resource use.

B. Assume the two countries choose autarky and do not trade. What would be the total world production of popcorn and peanuts under the autarky

C. Assume that each country decides to specialize in either popcorn or peanut based on its respective comparative advantage. Under the specialization, what is the total production of popcorn and peanuts?

D. Assume country A and B decide to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country receives from trade. Label these points on the two graphs “B.”