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Suppose that the costs of production of winter hats and wheat in two countries are as follows:United StatesRussiaPer winter hat$105,000 rublesPer bushel of wheat$ 12,500 rublesa. What is the opportunity cost of producing one more winter hat in the United States? In Russia?b. What is the opportunity cost of producing one more bushel of wheat in the United States? In Russia?c. Which country has a comparative advantage in winter hats? In wheat?
A country has comaprative advantage in producing a good if it can produce at a lower opportunity cost than some other country.The opportunity cost of producing something is the other goods that these resources could have produced instead. a) Since one rubel is equal to 0.019 dollars. So russia can produce per winter hat at $95 and per bushel of wheat at $47.5 Forproducing one more hat in united states is to spend more 10 dollars which will reduce the production of wheat by spending of $10. So the opportunity cost of producing one more hat in United States is $10. In Russia, to produce one more hat requires $95. It will reduce the production of wheat by $95/$47.5=$2. So the opportunity cost of producing one more hat in russia is $2. b) Similarly, to…

roduce one more unit of wheat requires to shift$1 from the production of one hat. So the opportunity cost of producing one more unit of wheat in united states is $0.1(1/10). The opportunity cost of producing one more unit of wheat in russia is $0.5(47.5/95). c) The opportunity cost of producing hats is lower in Russia. So Russia has comaprative advantage in producing hats. The opportunity cost of producing wheat is lower in United states. So United States has comaparative advantage in producing wheat.

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