Tuesday, January 3, 2012

Macro econ: Production possibilities frontier question?

Yes, definitely D. Before specialization, world production was 250 bushels of corn and 1400 bottles of wine because both countries were producing at the middle of their production capacity. After specialization, the US will only produce corn (400 bushels) and France will only produce wine (1600 bottles). So the difference is an extra 150 bushels of corn and 200 bottles of wine.

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