I'm super confused, can someone show me the working for this?
Hey stels,
So this question is really tricky at a first glance - there's too many tables and words and it's all just a little bit too confusing.
So if we break down the question, it's asking us what the increase in production is when they cooperate and trade.
Firstly, we have to look at what the total production is if they don't cooperate.
This means that each person will have to spend their time producing both goods - the question specifies that they will spend 4 hours on each good.
So since the table shows how much of one good they can make in 8 hours, you can find that if each person spends 4 hours on each good:
Max has 10 beers and 5 cheese and Morgan has 50 beers and 2.5 cheese.
In total, there is 60 beers and 7.5 cheese.
Then we need to find which activity each has a comparative advantage in, we do this by finding the opportunity cost.
For Max, the opportunity cost of 1 beer is 2 Cheese (since it takes 2.5 hours to make 1 beer and 1.25 hours to make one cheese, to give up one beer and to make cheese for 2 hours, produces 2), similarly the opportunity cost of 1 cheese is 0.5 beer.
For Morgan, the opportunity cost of 1 beer is 20 cheese and the opportunity cost of 1 cheese is 0.05 beer.
We can see that Max has a comparative advantage in cheese production and Morgan in beer production as they have a lower opportunity cost (they give up less comparatively to make that product)
When each specialises, we get 100 beers and 10 cheese.
from our original of 60 beers and 7.5 cheese, we have an increase of 40 beers and 2.5 cheese
Giving us the answer C
Hope this helps