(Table) Given the production possibilities schedules for the United States and Chile, which product should Chile produce if it is to produce the good for which it has a comparative advantage?

Question

Quizplus · Accepted Answer

According to the theory of comparative advantage, a country should specialize in producing the good for which it has a lower opportunity cost of production compared to other countries. Looking at the production possibilities schedules, we can see that Chile has a lower opportunity cost of producing avocados compared to the United States. Chile can produce either 40 avocados or 20 loaves of bread, while the United States can produce either 100 avocados or 200 loaves of bread. Therefore, Chile should specialize in producing avocados, as it has a comparative advantage in their production.

(Table) Given the Production Possibilities Schedules for the United States