Answer
a) The opportunity cost of making a car in Canada is 15 bushels of wheat. The opportunity cost of making a bushel of wheat in Canada is 1/15 of a car. The opportunity cost tells what the country (or person) is giving up by not producing another good.
b) The point labeled C is the point where Canada consumes 10 million cars. Canada would consume 150 million bushels of wheat.
c) 200 million bushels of wheat (marked C' on the graph). This option is outside of the production possibility frontier, so Canada should accept the deal.
Work Step by Step
a)
2 cars can be produced in the same time as 30 bushels of wheat. Divide both outputs by two to find a car can be made in the same time as 15 bushels of wheat.
30 bushels takes the same time as 2 cars. Divide both sides by 30 to find a bushel of wheat takes the same time as 1/15 of a car.
b)
10 million cars consumed, 10 million workers
$10$ million/$10$ million = $1$ cars/worker
Consuming one car per worker takes half of the worker's possible production. Thus, the worker also produces 15 bushels of wheat.
$15*10 = 150$ million bushels of wheat
c)
Canada would have to produce all 20 million cars to be able to have 10 million cars to trade and 10 million cars to consume.
If Canada were to trade 10 million cars to the United States, Canada would gain 200 million bushels of grain. Canada normally produces 150 million bushels of grain when producing 10 million cars. Canada gains 50 million bushels of grain (compared to their normal production).
