Identifying the comparitive advantage for two countries.
Assume labor is the only cost of production and labor coefficients (hours of labor required per unit of output) in MACONDO and KRYPTON for each good are as follows:
GOOD MACONDO KRYPTON
A 15 5
B 5 10
C 2 5
D 1 1
E 1 4
a) If these are the only two nations who trade, and consumers demand all five goods (the only ones that exist), Elucidate what you can conclude about the comparative advantage of MACONDO.
b) Within what limits must the ratio of wages in KRYPTON to wages in MACONDO settle when trade is possible? If that ratio turns out to be 2, what goods will each country export and import?