Posted: December 12th, 2016

Using productive efficiency as the guide, which country should produce Chevrolets and which should produce Toyotas

Assume the US can produce Toyotas at the cost of $18,000 per can and Chevrolets at $16,000 per car. In Japan, Toyotas can be produced at 1,000,000 yen and Chevrolets at 500,000 yen. a. In terms of Chevrolets what is the opportunity cost of producing Toyotas in each country? b. Who has the comparative advantage in producing Chevrolets? c. Assume Americans purchase 500,000 Chevrolets and 300,000 Toyotas each year and the Japanese purchase far fewer of each. Using productive efficiency as the guide, which country should produce Chevrolets and which should produce Toyotas?