Suppose That: • Malaysia Requires an Hour of Labor to Produce a Produce

question 148

Essay

Suppose that:
• Malaysia requires an hour of labor to produce a pound of rice and 2
hours of labor to produce a pencil;
• Indonesia requires 2 hours of labor to produce a pound of rice and 4
hours of labor to produce a pencil;
• each country has 10,000 hours of labor to allocate between the
production of rice and pencils; and
• in autarky, Malaysia consumes 5,000 pounds of rice and 2,500
pencils.
Which country has an absolute advantage in rice production? In pencil
production?
Which country has a comparative advantage in rice production? In pencil
production?
Will trade between the two countries be mutually beneficial?

---

Definitions:

Direct Materials

are raw materials that can be directly attributed to the production process of a specific product, such as wood for furniture or metal for cars.

Break-even Points

The level of production or sales at which total revenues equal total expenses, resulting in no net profit or loss.

Common Fixed Expenses

These are fixed costs that do not vary with the volume of production or sales, such as utilities, rent, or administrative salaries, shared across different products or departments.

Variable Costing

An accounting method that considers only variable costs as product costs and treats fixed costs as period costs to be charged in full against the current period's revenue.