) The USA and Canada are two countries that produce lumber and wheat. In the USA, each ton of lumber requires 5 hours to produce and each ton of wheat requires 2 hours to produce. In Canada, each ton of lumber requires 6 hours to produce, and each ton of wheat requires 4 hours to produce. Assume both countries have access to 120,000 labor hours per week.

1. Can the US produce 16,000 tons of lumber and 50,000 tons of wheat? Explain.
2. Determine which country has an absolute advantage in wheat and in lumber.
3. What is the opportunity cost of a ton of wheat in the USA?
4. Which country should be importing wheat? Be sure to explain your answer.

1. No

2. USA in Wheat and Lumber both

3. Opportunity cost is less than 1

4. Canada.

Explanation:

1. To produce 16000 tonnes of Lumber and 50000 tonnes of wheat US would require 160000 labor hours which is not available.

2. USA produces more lumber and wheat in less worker hours and hence in less rates so clearly has an advantage.

3. Opportunity cost is the cost incurred when one alternative is chosen over another. As producing wheat takes less time than lumber, it is preferable to produce is and thus no opportunity cost is incurred that would be more than the produce.

4.  Canada. Because US produces wheat more cheap and thus it will be easier to export than to make own wheat which is expensive.