Table 2-26 -Refer to Table 2-26 CIf the Two Countries Do Not Trade and Consume Whatever

question 209

Essay

Table 2-26
$\begin{array}{|l|c|c|} \hline & \text { One Motorcycle } & \text { One Guitar } \\\hline \text { Ireland } & 10 \text { hours } & 2.5 \text { hours } \\\hline \text { Scotland } & 9 \text { hours } & 2 \text { hours }\\\hline\end{array}$
-Refer to Table 2-26.This table shows the number of labor hours required to produce a motorcycle and a guitar in Ireland and Scotland.
a.Assume each country has a total of 2,700 labor hours to devote to the production of the two goods and draw the production possibilities frontier for each country.Put "Motorcycle" on the horizontal axis and "Guitar" on the vertical axis.Be sure to identify the intercept values on your graphs.
b.Suppose each country allocates 55% of its labor hours to guitar production and 45% to the production of motorcycles.Complete Table 2-27 below to show each country's output of the two products.
Table 2-27: Production and Consumption with no Trade
$\begin{array}{|l|l|c|} \hline & \text { Motorcycle } &\text { } \\& \text { Output } &\text {Guitar Output } \\\hline \text { Ireland } &&\\\hline \text {Scotland } &&\\\hline \text { Total } &&\\\hline \end{array}$

c.If the two countries do not trade and consume whatever they produce,identify the current production and consumption point for each country on their respective production possibilities frontiers.Label Ireland's consumption point "I" and Scotland's consumption point "S."
d.Suppose the two countries specialize and trade.Which country should produce motorcycles and which should produce guitars? Explain your answer.
e.Complete Table 2-28 below to show each country's output with specialization.
Table 2-28: Output with Specialization
$\begin{array}{|l|l|c|} \hline & \text { Motorcycle } &\text { } \\& \text { Output } &\text {Guitar Output } \\\hline \text { Ireland } &&\\\hline \text {Scotland } &&\\\hline \text { Total } &&\\\hline \end{array}$

f.Did specialization increase the combined output for the two countries without any increase in resources? If so,by how much?
g.Suppose Ireland and Scotland agree to trade so that in exchange for 600 guitars,the exporter of guitars receives 140 motorcycles.Complete Table 2-29 below to show each country's consumption bundle after trade.
Table 2-29: Consumption with Trade
$\begin{array}{|l|l|c|} \hline & \text { Motorcycle } &\text { Guitar } \\\hline \text { Ireland } &&\\\hline \text {Scotland } &&\\\hline \end{array}$

h.Show the consumption points after trade on each country's production possibilities frontier.Label these points "X" for Ireland and "Y" for Scotland.
i.Has trade made the two countries better off? Explain your answer.

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Definitions:

Work in Process

Inventory items that are partially completed but not yet ready for sale; represents goods in various stages of production.

Predetermined Overhead Rate

A rate calculated at the beginning of a period by dividing estimated overhead costs by an estimated activity base, such as labor hours, used to allocate overhead costs to products.

Direct Labor-Hours

A measure of the total hours worked by employees directly involved in the manufacturing process, used as a base for allocating overhead costs.

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities, rent, and salaries for administrative staff, not directly tied to the production of a specific product.