Suppose That a Worker in Argentina Can Make Two Saddles

question 33

Essay

Suppose that a worker in Argentina can make two saddles or 10 bridles per month, and a worker in Brazil can make three saddles or 20 bridles per month.
a. In what sense do saddles and bridles cost less in Brazil than in Argentina?
b. In what sense do saddles cost less in Argentina than in Brazil?
c. If Argentina and Brazil were to engage in trade, which country would export which good?
d. Would the answer to the above question change if a worker in Brazil could make four saddles per month?

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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with the level of production output, including rent, salaries of permanent staff, and depreciation of factory equipment.

Production Volume

The total quantity of goods or products that a factory or production system can produce over a specific period.

Sales Volume

Refers to the total number of units sold within a given period.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.