Here's the question that has me BOGGLED...i've been at this for an hour now!
"Iggi and Kurt each own an ice cream shop that sells homemade ice cream on a homemade waffle cone. The table below shows the number of ice cream scoops and waffle cones that Iggi and Kurt produce in an hour. Both Iggi and Kurt work 8 hours per day and spend their time producing ice cream, waffle cones, or a combination of the two.
Ice Cream(Scoops per hour)
Waffle Cones(Cones per hour)
Iggi---- 24scoops...........8cones
Kurt---- 16scoops..........4cones
1.7. The following graph shows Kurt's and Iggi's production possibilities frontiers for a given day, and indicates Kurt's consumption without trade (point K) and Iggi's consumption without trade (point I).
With trade, Kurt and Iggi each dedicate all 8 hours to the production of the good in which they have a comparative advantage. (My note: Iggi has a CA in ice cream, Kurt in waffle cones.) The terms of trade stipulate a daily shipment of 70 scoops of ice cream for 20 waffle cones.
Place a tan point (dash symbol) on the graph to indicate Iggi's consumption with trade (I*). Then place a black point (X symbol) on the graph to indicate Kurt's consumption with trade (K*). Accuracy matters, so you should check your coordinates before you submit your answer."
according to my calculations, after trade Kurt has 12 waffle cones (a DECREASE from his 20 cones w/o trade) and 70 ice cream. Iggi has 20 waffle cones (a DECREASE from his 44 w/o trade) and 122 ice cream. this is wrong, isn't it? shouldn't both goods increase after trade?! please answer, i have to hand this in online and the deadline is in 2 hours. thanks!Economics question - production possibilities frontiers?
Iggi has an absolute advantage in the production of ice cream (1 ice-cream = 1/3 waffle cones)
Kurt has an comparative advantage in the production of ice cream (1 ice-cream = 1/4 waffle cones, thus less and consequently cheaper).
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