Which country should specialize in coffee

Reference no: EM131915977

Problem

The Dominican Republic and Nicaragua both produce coffee and rum. The Dominican Republic can produce 20 thousand tons of coffee per year or 10 thousand barrels of rum. Nicaragua can produce 30 thousand tons of coffee per year or 5 thousand barrels of rum.

a. Suppose the Dominican Republic and Nicaragua sign a trade agreement in which each country would specialize in the production of either coffee or rum. Which country should specialize in coffee? Which country should specialize in producing rum?

b. What are the minimum and maximum prices at which these countries will trade coffee?

Reference no: EM131915977

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