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# Opportunity cost and comparative advantage using an output table

In this video, we use the PPCs for two different countries that each produce two goods in order to create an output table based on the data in the graph. We then use the output table to determine the opportunity costs of producing each good. Finally, we determine which country has a comparative advantage in each good.

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• What if the company/country produces only one good? Would it have no opportunity cost?
• Everything has an opportunity cost! For example, suppose a country only produced cars. Then the opportunity cost would something it could be producing instead using the same resources (like motorcycles or trucks).
• What if the country could produce only 6 basketballs, the opportunity cost would be 1.
So which country would have a comparative advantage? Because in this scenario the country A would always produce more.
• Neither would have a comparative advantage because their opportunity costs would be the same. 6b = 6s. Solve for basketballs and you get 1s which is the same as country B.

Comparative advantage only compares the opportunity costs of each country, so it doesn't matter how much each country can actually produce. If we were talking about absolute advantage it would be a different story as absolute advantage compares how much they can actually produce (not their opportunity costs).
• How does anyone actually make a graph about this that's useful in reality where countries have thousands if not millions or billions of goods? Do we look at things as categories like manufacturing versus agriculture? Are markets constrained in such a way that we can actually make a graph like this if we assume like, livestock markets or something, don't change as their percentage of the GDP?
• When making a graph for countries with many goods, we group similar things together like farming or making things, but we might need to adjust for real changes in markets, even if some details are simplified.
• What if the company/country produces only one good? Would it have no opportunity cost?
• Incorrect. Recall that Opportunity cost is the value of the next best alternative foregone when a choice is made.

So the opportunity cost would be the value of the next best alternative that could have been produced if the company or country had not chosen to produce that one good.

For example, let's say the company has a factory that can produce either smartphones or tablets. If the company decides to produce smartphones, the opportunity cost would be the potential revenue it could have earned from producing tablets instead. This could be calculated by estimating the revenue that could have been earned from selling tablets and subtracting it from the revenue generated by selling smartphones.

Moreover, the opportunity cost could also be the resources and time that the company invests in producing smartphones instead of developing new products or improving existing ones. By producing only one good, the company may miss out on potential opportunities to diversify its product line or invest in research and development to improve its existing product.

• how can country b have a lower oppertunity cost?
• A worker in country A can only produce 6 sneakers or 8 basketballs. 6 s = 8 b. So the OC to produce 1 sneaker is 8/6=4/3 sneakers. 1 s = 4/3 b. Calculate in the same way, the OC of a worker in country B is 1 s = 1 b, so the worker in country B has a lower OC in producing sneakers
• How will things change (if any) ,if the output was not per worker per day for both basketball and shoes .
• The curve may change depending what is the x-axis and y-axis. It's impossible to describe how will things change without knowing more details.
(1 vote)
• i cant understand that when firm A itself , can have absolute advantage in each goods, why the opportunity cost differs due to slope of line ??
• The slope is the opportunity cost, or the change in two points plotted. Although absolute advantage contextualize with other concepts of PPF graph, it is a distinct concept: it is merely to be able to produce more of that good than the other when you have same amount of resources.

The question wasn't very clear to me, if you're still in doubt feel free to ask further.
(1 vote)
• If a country has the same comparative advantages but an absolute advantage on both of it's products over another country. Then how do they go about trading their merchandise?
• If a country possesses both comparative and absolute advantages in producing two products over another country, they can still benefit from trade by specializing in the product where their comparative advantage is the greatest. By focusing on producing the goods with the lowest opportunity cost relative to the other country, both parties can maximize efficiency and overall output. Through trade, each country can exchange their surplus goods for the products they lack comparative advantage in, leading to a mutually beneficial outcome where both countries can access a wider range of goods than they could produce independently.
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• When calculating opportunity cost, do we assume that both goods have the same monetary value? For example, one shoe might be the same monetary cost of four basketballs.
(1 vote)
• Opportunity cost is not just about monetary cost. It is the loss of potential gain from other alternatives when one alternative is chosen. For example, if a farmer chooses to plant corn, the opportunity cost is a different crop, like wheat being planted. When calculating opportunity cost, we take into account production quantity (when calculating with a PPC). For example, when a producer increases their production of a good A from 10 to 11 good A, they go from making 9 other goods (B) to 6 other good B. The 1-unit increase in producing good A means that its opportunity cost is 3 B, even if they were the same monetary cost.