Superb Professors

Consider two individuals, Fred and Barney. In one hour, Fred can produce either 15 gallons of beer, or 3 gallons of wine. In one hour, Barney can produce 2 gallons of beer or 4 gallons of wine. Assume both goods can be produced in continuous quantities.
a) Explain who has the comparative advantage in producing each good. Specific calculations of opportunity cost should be part of your explanation. Use this information to help draw the PPF for the entire economy for one hour if Fred and Barney work together with wine on the horizontal axis. Be sure to put specific numbers on each intercept. Give specific values for the MRT at each point and identify any point where the MRT changes. (1 point)
b) Assume that each person wants to consume 3 gallons of wine, then as much beer as they can. Determine what each person will end up consuming i) when they cannot trade.
ii) when they can trade at a price of 1gallon wine = 2 gallons beer.
Use this to explain why trade benefits both consumers. (2 points)
 
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