Mexico is capable of producing 20 auto tires or 16 microcircuits per labor hour. Brazil is capable of producing 24 auto tires or 24 microcircuits per labor hour. Based on this information, we can conclude that:
A) Brazil has an absolute advantage in both goods.
B) Brazil will export both goods to Mexico.
C) Mexico has a comparative advantage in tires.
D) Answers Brazil has an absolute advantage in both goods and Mexico has a comparative advantage in tires are both correct.
E) Answers Brazil has an absolute advantage in both goods, Brazil will export both goods to Mexico, and Mexico has a comparative advantage in tires are all correct.

Question

Quizplus · Accepted Answer

Brazil has an absolute advantage in both goods, but Mexico has a comparative advantage in tires because it has a lower opportunity cost of producing them (giving up only 0.8 microcircuits per tire compared to Brazil's opportunity cost of giving up 1 microcircuit per tire). Therefore, Mexico should specialize in producing tires and trade with Brazil for microcircuits. The answer choices that mention exports or all three statements being correct are not necessarily supported by the information given.

Mexico Is Capable of Producing 20 Auto Tires or 16