The correct answer is A) Arcadonia should specialize in producing plywood.
From the passage, it can be concluded that Arcadonia should specialize in producing plywood.
If the country of Econoland can use its resources to produce either 500 tons of crab or 200 tons of plywood, then the country of Arcadonian can use its resources to produce 200 tons of crabs or 100 tons of plywood. Using economic concepts we can say that Arcadonia should specialize in producing plywood and take advantage of the decision. A country that has a comparative advantage is able to produce a product with lower opportunity cost. It doesn’t matter that its competitor has a notorious advantage in their production system.
The other options of the question were, b) Econoland has a comparative advantage in producing plywood, c) Arcadonian has an absolute advantage in the production of both crab and plywood, and d) Econoland should specialize in producing plywood and trade them with Arcadonia for crab.
