South Africans and Botswanaans enjoy Chakalaka and Beer. Suppose that these are the only two products they consume and produce with Chakalaka being relatively more labour intensive and Beer being relatively more capital intensive in the production process ( αb=0.8 and αc=0.2). Suppose that, as a result of the Southern African Customs Union, all impediments or barriers to trade are lifted, such that these countries can freely trade both goods without any costs.
South Africans and Botswanaans enjoy Chakalaka and Beer. Suppose that these are the only two products they consume and produce with Chakalaka being relatively more labour intensive and Beer being relatively more capital intensive in the production process ( αb=0.8 and αc=0.2). Suppose that, as a result of the Southern African Customs Union, all impediments or barriers to trade are lifted, such that these countries can freely trade both goods without any costs.
Assuming that an Entrepreneur knows the price of both these goods and both goods are produced, using the Learner diagram describe how the entrepreneur chooses the cost-minimising combinations of inputs in the production of both goods based on the neoclassical trade theory.
Step by step
Solved in 2 steps
