Figure 2.7 Figure 2.7 shows the production possibility frontiers for Pakistan and Indonesia.Each country produces two goods, cotton and cashews.
-Refer to Figure 2.7.What is the opportunity cost of producing 1 bolt of cotton in Pakistan?

Question

Figure 2.7  Figure 2.7 shows the production possibility frontiers for Pakistan and Indonesia.Each country produces two goods, cotton and cashews.
-Refer to Figure 2.7.What is the opportunity cost of producing 1 bolt of cotton in Pakistan?

Quizplus · Accepted Answer

The opportunity cost of producing 1 bolt of cotton in Pakistan is the amount of cashews that must be given up to produce that bolt of cotton. From the graph, we can see that in Pakistan, producing 1 bolt of cotton requires giving up 5/8 of a kilogram of cashews.

The best choice(s) depend on the specific needs and preferences of each country. However, if Pakistan and Indonesia want to maximize their combined production of cotton and cashews, they should specialize in the good in which they have a comparative advantage (i.e. lower opportunity cost). For example, Pakistan has a lower opportunity cost of producing cotton than Indonesia, so it should specialize in cotton production while Indonesia should specialize in cashew production. By doing so, both countries can increase their total output and potentially benefit from trade.

Figure 27 Figure 2