ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:Q6.
Production possibilities frontier, gains from trade, comparative advantage,
absolute advantage, and returns to scale.
Suppose that there are two countries, A and B. The production possibilities frontier of
country A is given by coconuts A + √fish = 8, and the production possibilities frontier
of country B is given by coconuts B + √fishB = 8 where coconuts, denotes the amount of
coconuts produced by country i and fish, denotes the amount of fish produced by country
i.
Assume that the utility function of each country i is given by the expression
U (coconutsi, fishi) = min (coconutsi, fishi)
where coconuts, denotes the amount of coconuts consumed by country i and fish, is the
amount if fish consumed by country i.
Suppose that all gains from trade are divided equally between the countries.
Determine the utility of each country when the agents can trade.
Write the utility of country A here
and provide a detailed explanation below.
and the utility of country B here
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