The maximum production possible in Rome and in Cathay are as follows:

-If each country specializes in the production of what it does best,what are the gains from trade?
A)There are no gains.
B)20 bread.
C)20 figs.
D)10 bread and 10 figs.

Question

The maximum production possible in Rome and in Cathay are as follows:
 
-If each country specializes in the production of what it does best,what are the gains from trade?
A)There are no gains. 
B)20 bread. 
C)20 figs. 
D)10 bread and 10 figs.

Quizplus · Accepted Answer

Since Rome can produce 20 bread or 10 figs, while Cathay can produce only 10 bread or 10 figs, Rome has a comparative advantage in both bread and figs. Therefore, Rome should produce both bread and figs, while Cathay should specialize in producing only one of them. If Cathay specializes in producing figs, then Rome can produce 20 bread and trade 10 bread for 10 figs from Cathay, resulting in a total output of 20 bread and 10 figs for Rome and 10 bread and 10 figs for Cathay, which is better than either country producing only one type of good. Thus, there are gains from trade, and the best choice is option D, 10 bread and 10 figs.

The Maximum Production Possible in Rome and in Cathay Are