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Suppose Canada can produce either 120 units of goods, 80 units of services, or any linear combination thereof. Mexico can produce 90 units of goods, 50 units of services, or any linear combination thereof.
-Then in terms of production,

Question

Quizplus · Accepted Answer

To compare the opportunity cost of producing goods in both countries, we need to calculate the slope of their production possibilities frontiers (PPFs). The slope of the PPF equals the opportunity cost of producing the good on the x-axis in terms of the good on the y-axis. The slope is steeper (i.e. the opportunity cost is higher) in Canada than in Mexico, indicating that Canada gives up more services for each unit of goods it produces than Mexico does. Therefore, Mexico has a comparative advantage in producing goods, and Canada should focus more on producing services.

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