Answer the Next Three Questions on the Basis of the Following

question 11

Essay

Answer the next three questions on the basis of the following production possibilities data for Narnia and Somosa.All figures are in thousands of units. (a) If trade occurs between Narnia and Somosa, which nation should export what product? Why?(b) What are the limits of the terms of trade between Narnia and Somosa?(c) Assume that prior to specialization and trade, Narnia and Somosa chose production possibility "C." Now each specializes according to comparative advantage.What will be the resulting gains from trade? Explain your answer.

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Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the efficiency with which a company utilizes its resources.

Explicit Costs

are direct, out-of-pocket payments for expenses incurred by a business or individual.

Revenues

The total income generated by a company or organization from its activities, before any expenses are subtracted.

Economic Profit

The difference between the total revenues received by a business and the total opportunity costs of all resources used in the production.