Question

the data below show the total production (in millions) of the only two goods produced in kitchener and waterloo, two small planets in deep space.
kitchener: 10 kiwis or 7 trucks
waterloo: 5 kiwis or 8 trucks
note: enter your responses rounded to 2 decimal places.
a. the opportunity cost of a kiwi in kitchener is (click to select) .
b. the opportunity cost of a kiwi in waterloo is (click to select) .
c. the opportunity cost of a truck in kitchener is (click to select) .
d. the opportunity cost of a truck in waterloo is (click to select) .
note: if necessary, round your answers for parts (e), (f), and (g) to 1 decimal place. remember to round 0.05 up to 0.10.
e. if, before trade, each planet was devoting half its resources to producing each product, then the total amount of each good produced by both planets is kiwis and trucks.
f. if the two planets were to specialize in producing the product they do best, the total amount they could produce is kiwis made by (click to select) and trucks made by (click to select) .
g. when comparing the scenario in part f to that in part e, the total gains for society as a result of specialization are: (click to select) and (click to select) .

Explanation:

Step1: Calc Kitchener kiwi opp cost

Opportunity cost of 1 kiwi = $\frac{\text{Total trucks}}{\text{Total kiwis}} = \frac{7}{10} = 0.70$ trucks

Step2: Calc Waterloo kiwi opp cost

Opportunity cost of 1 kiwi = $\frac{\text{Total trucks}}{\text{Total kiwis}} = \frac{8}{5} = 1.60$ trucks

Step3: Calc Kitchener truck opp cost

Opportunity cost of 1 truck = $\frac{\text{Total kiwis}}{\text{Total trucks}} = \frac{10}{7} \approx 1.43$ kiwis

Step4: Calc Waterloo truck opp cost

Opportunity cost of 1 truck = $\frac{\text{Total kiwis}}{\text{Total trucks}} = \frac{5}{8} = 0.63$ kiwis

Step5: Pre-trade total kiwis

Kitchener: $\frac{10}{2}=5$, Waterloo: $\frac{5}{2}=2.5$. Total: $5 + 2.5 = 7.5$

Step6: Pre-trade total trucks

Kitchener: $\frac{7}{2}=3.5$, Waterloo: $\frac{8}{2}=4$. Total: $3.5 + 4 = 7.5$

Step7: Specialization total kiwis

Kitchener has lower kiwi opp cost, so it makes 10 kiwis. Waterloo makes 0 kiwis. Total: $10 + 0 = 10.0$

Step8: Specialization total trucks

Waterloo has lower truck opp cost, so it makes 8 trucks. Kitchener makes 0 trucks. Total: $0 + 8 = 8.0$

Step9: Gains in kiwis

Specialization total - pre-trade total: $10.0 - 7.5 = 2.5$ kiwis

Step10: Gains in trucks

Specialization total - pre-trade total: $8.0 - 7.5 = 0.5$ trucks

Answer:

a. 0.70 trucks
b. 1.60 trucks
c. 1.43 kiwis
d. 0.63 kiwis
e. 7.5 kiwis and 7.5 trucks
f. 10.0 kiwis made by Kitchener and 8.0 trucks made by Waterloo
g. 2.5 kiwis and 0.5 trucks