Suppose that a worker in Country A can make either 10 iPhones or 5 iPads each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPhones or 10 iPads each year. Country B has 200 workers. Which of the following is a bundle of goods that Country B could potentially make?
A) (400 iPhones, 2,000 iPads)
B) (200 iPhones, 1,500 iPads)
C) (300 iPhones, 450 iPads)
D) (400 iPhones, 1 iPad)

Question

Quizplus · Accepted Answer

To find the maximum amounts of iPhones and iPads that Country B can produce, we need to compare the opportunity costs of each good. The opportunity cost of producing one iPhone in Country B is equivalent to producing 5 iPads [(2 iPhones)/(10 iPads)], while the opportunity cost of producing one iPad is equivalent to producing 0.2 iPhones [(10 iPads)/(2 iPhones)].

Therefore, Country B has a comparative advantage in producing iPads, while Country A has a comparative advantage in producing iPhones. To maximize production, Country B should focus on producing iPads and trade with Country A for iPhones.

With 200 workers who can each produce 10 iPads/year, Country B can produce a total of 2,000 iPads/year. However, if all 200 workers were to produce iPhones instead, they could only produce a total of 400 iPhones/year. Therefore, Country B's production possibility frontier includes options such as (300 iPhones, 450 iPads) or (200 iPhones, 1,500 iPads), but not options such as (400 iPhones, 2,000 iPads) or (400 iPhones, 1 iPad) as these combinations would require exceeding the production possibility frontier.

Out of the options provided, the highest combination of iPads and iPhones that Country B can potentially produce is (300 iPhones, 450 iPads).

Suppose That a Worker in Country a Can Make Either