Question

Tahani and Chidi produce ties and belts, Chidi can produce a maximum of 120 ties or 40 belts and
Tahani can produce 90 ties or 60 belts. They decide to specialize in their respective comparative
advantage of production, and they agree to trade at a rate of 2 ties = 1 belt. If Chidi agrees to trade
50 ties with Tahani, which of the following represents Tahani's PPF and what she can have after
trade?

Answer 1

Based on the information given regarding the opportunity cost, it should be noted that at the end, Tahani will have 50 ties and 35 belts. Therefore, the correct option that illustrates this is graph B.

How to solve the opportunity cost.

From the complete question, it should be noted that the opportunity cost of ties for Chidi will be:

= 40/120 = 0.33

The opportunity cost of belts for Chidi will be:

= 120/40 = 3

The opportunity cost of ties for Tahani will be:

= 60/90 = 0.67

The opportunity cost of belts will be:

= 90/60 = 1.5

Therefore, Chidi has a compative advantage in the production of ties while Tahani has a comparative advantage in the production of belts.

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