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Chapter 2: Problem 3

In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti, or any combination in between. The Frivoli, by themselves, each month can produce 40 pounds of spaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti, or any combination in between. a. Assume that all production possibility frontiers are straight lines. Draw one diagram showing the monthly production possibility frontier for the Tivoli and another showing the monthly production possibility frontier for the Frivoli. Show how you calculated them. b. Which tribe has the comparative advantage in spaghetti production? In meatball production? In A.D. 100 the Frivoli discover a new technique for making meatballs that doubles the quantity of meatballs they can produce each month. c. Draw the new monthly production possibility frontier for the Frivoli. d. After the innovation, which tribe now has an absolute advantage in producing meatballs? In producing spaghetti? Which has the comparative advantage in meatball production? In spaghetti production?

Short Answer

Expert verified
Answer: After the technological innovation, Tivoli has the comparative advantage in both spaghetti and meatball production.

Step by step solution

01

Identify the endpoints for Tivoli's PPF

The Tivoli can produce either 30 pounds of spaghetti and no meatballs, or 50 pounds of meatballs and no spaghetti. These endpoints represent the bounds of production possibilities for the PPF.
02

Plot the PPF for Tivoli

On a graph with spaghetti on the x-axis and meatballs on the y-axis, use the endpoints (30,0) and (0,50) to draw a straight line between them. This represents the production possibility frontier for the Tivoli.
03

Identify the endpoints for Frivoli's PPF

The Frivoli can produce either 40 pounds of spaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti. These endpoints represent the bounds of production possibilities for the PPF.
04

Plot the PPF for Frivoli

On a separate graph with spaghetti on the x-axis and meatballs on the y-axis, use the endpoints (40,0) and (0,30) to draw a straight line between them. This represents the production possibility frontier for the Frivoli. #b. Identifying Comparative Advantages#
05

Calculate Opportunity Costs

Calculate the opportunity cost of producing one unit of spaghetti for each tribe. Tivoli: \[Opportunity\;Cost(Spaghetti)=\frac{50}{30}=\frac{5}{3}\] meatballs. Frivoli: \[Opportunity\;Cost(Spaghetti)=\frac{30}{40}=\frac{3}{4}\] meatballs.
06

Identify Comparative Advantages

Frivoli has a lower opportunity cost of producing spaghetti, so they have the comparative advantage in spaghetti production. Conversely, Tivoli has a lower opportunity cost of producing meatballs, so they have the comparative advantage in meatball production. #c. Drawing the New Monthly PPF for Frivoli#
07

Identify New Endpoints for Frivoli's PPF

The Frivoli discover a new technique that doubles their meatball production. Now, they can produce either 40 pounds of spaghetti and no meatballs, or 60 pounds of meatballs and no spaghetti. These endpoints represent the bounds of the new production possibilities for the PPF.
08

Plot the New PPF for Frivoli

On a separate graph with spaghetti on the x-axis and meatballs on the y-axis, use the new endpoints (40,0) and (0,60) to draw a straight line between them. This represents the new production possibility frontier for the Frivoli. #d. Comparing Advantages After Innovation#
09

Identify Absolute Advantages

Now, Tivoli can produce a maximum of 50 pounds of meatballs while Frivoli can produce a maximum of 60 pounds of meatballs. Thus, Frivoli has an absolute advantage in producing meatballs. Tivoli can produce a maximum of 30 pounds of spaghetti, while Frivoli can produce a maximum of 40 pounds of spaghetti. Thus, Frivoli has an absolute advantage in producing spaghetti.
10

Calculate New Opportunity Costs

Calculate the new opportunity cost of producing one unit of spaghetti for Frivoli: \[Opportunity\;Cost(Spaghetti)=\frac{60}{40}=\frac{3}{2}\] meatballs.
11

Identify New Comparative Advantages

Now, Frivoli's opportunity cost of producing spaghetti has risen to \[\frac{3}{2}\] meatballs, while Tivoli's opportunity cost remains at \[\frac{5}{3}\] meatballs. Tivoli now has a lower opportunity cost for producing spaghetti, so they have the comparative advantage in spaghetti production after the innovation. Tivoli still has the comparative advantage in meatball production, as their opportunity cost remains lower.

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