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Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization and trade will be

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Answer:

the gains resulting from trade:

  • 8 porks - (2 + 6) = 0
  • 20 beans - (10 + 6) = 4 beans

Explanation:

Latalia's production        A.   B.   C.   D.   E.

pork                                 4    3    2    1     0

beans                              0    5   10   15   20

Trombonia's production  A.   B.   C.   D.   E.

pork                                  8    6    4     2    0

beans                               0    6   12    18   24

Latalia's opportunity cost of producing pork at C = 10 / 2 = 5 beans

Latalia's opportunity cost of producing beans at C = 2 / 10 = 0.2 pork

Trombonia's opportunity cost of producing pork at B = 6 / 6 = 1 bean

Trombonia's opportunity cost of producing beans at B = 6 / 6 = 1 pork

Latalia should specialize in the production of beans while Trombonia should specialize in the production of pork.

Total production will be 8 porks and 20 beans.

the gains resulting from trade:

  • 8 porks - (2 + 6) = 0
  • 20 beans - (10 + 6) = 4 beans

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