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Answer to Question #1685 in Economics of Enterprise for Scott

Question #1685
In a day of production, firms in Angola can produce 200 liters of oil or 100 kilograms of tungsten. Firms in Namibia can produce 160 liters of oil or 60 kilograms of tungsten. What is the maximum price the country with the comparative advantage in tungsten is willing to pay for a liter of oil in terms of tungsten?
Expert's answer
The opportunity cost for oil are: Angola - 0.5 kg of tungsten, Namibia - 3/8kg of tungsten.
The opportunity cost for tungsten are: Angola - 2 liters of oil, Namibia - 2.66 litersof oil.
So Namibia has a comparative advantage in oil and Angola has a comparative advantage in Tungsten, so Angola will pay no more than 0.5 kg of tungsten

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