Question

lan and dan are both able to produce nuts and bolts. the table below shows the amount of nuts or bolts that they can produce per work day.

	nuts	bolts
dan	50	250

use at least 3 decimal points in your answers and all intermediate calculations.
given this information:

1. lans opportunity cost of nuts is 2.5
2. lans opportunity cost of bolts is 0.4
3. dans opportunity cost of nuts is 5
4. dans opportunity cost of bolts is 0.2
5. if the two individuals were to beneficially trade with each other in nuts and bolts then lan would select
6. ...and dan would select
7. an acceptable rate of select (in terms of bolts per unit of nuts) for them would be 1

Explanation:

Step1: Calculate Lan's opportunity - cost of nuts

Opportunity cost of nuts = $\frac{\text{Quantity of bolts}}{\text{Quantity of nuts}}$. For Lan, $\frac{250}{100}=2.500$.

Step2: Calculate Lan's opportunity - cost of bolts

Opportunity cost of bolts = $\frac{\text{Quantity of nuts}}{\text{Quantity of bolts}}$. For Lan, $\frac{100}{250}=0.400$.

Step3: Calculate Dan's opportunity - cost of nuts

Opportunity cost of nuts = $\frac{\text{Quantity of bolts}}{\text{Quantity of nuts}}$. For Dan, $\frac{250}{50}=5.000$.

Step4: Calculate Dan's opportunity - cost of bolts

Opportunity cost of bolts = $\frac{\text{Quantity of nuts}}{\text{Quantity of bolts}}$. For Dan, $\frac{50}{250}=0.200$.

Step5: Determine who has comparative advantage in nuts

Lan's opportunity - cost of nuts is 2.5 and Dan's is 5. Since Lan has a lower opportunity - cost of producing nuts, Lan has a comparative advantage in nuts and should sell nuts.

Step6: Determine who has comparative advantage in bolts

Dan has a lower opportunity - cost of producing bolts (0.2) compared to Lan (0.4), so Dan should sell bolts.

Step7: Determine the acceptable trade - off ratio

The acceptable rate of exchange (in terms of bolts per nut) should be between Lan's and Dan's opportunity costs of nuts. So it should be between 2.5 and 5. An acceptable rate could be 3 (for example, here we assume the answer is 3 as long as it is in the range).

Answer:

1. 2.500
2. 0.400
3. 5.000
4. 0.200
5. sell nuts
6. sell bolts
7. 3 (any value between 2.5 and 5 would be acceptable in a general sense for the trade - off ratio)