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Opportunity Cost and Trade Advantages

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Unit 1 Individual Project
Opportunity Cost and Trade Advantages
Heather L. Sellers
AIU Online, Microeconomics ECON220-1401A-04

Abstract
The unit 1 individual project has requested that specific questions in relation to Comparative Advantage, Absolute Advantage, Opportunity Cost and Trade be completed. This paper will show the formulas to determine the information for who has absolute advantage, who has comparative advantage and what the opportunity cost is for each trade option. This paper will also discuss the trade advantages of the individuals and the possibility of specialization involved in the requested details for each of the equations.
Keywords: Comparative Advantage, Absolute Advantage, Opportunity Cost, Trade, Specialization
Unit 1 Individual Project
Opportunity Cost and Trade Advantages
Michelle has enough resources to produce 200 pounds of potatoes or to produce fifty chickens. James has enough resources to produce eighty pounds of potatoes or forty chickens. The following sections will utilize this information to produce equations that identify the best use of the resources both James and Michelle have, as well as to identify trade options and benefits.

To determine opportunity cost for Michelle and James the following equations were necessary.
Michelle, Potatoes: 50 (Chickens)/200 (Potatoes) = ¼ (Opportunity cost for potatoes is that one fourth of the resources required to produce a chicken would be required to produce a pound of potatoes.)
Michelle, Chickens: 200 (Potatoes)/50 (Chickens) = 4 (Opportunity cost for chickens is that four times more resources required than producing one pound of potatoes)
James, Potatoes: 40 (Chickens)/80 (Potatoes) = ½ (Opportunity cost for potatoes is that one half of the resources required to produce a chicken would be required to produce a pound of potatoes.)
James, Chickens: 80 (Potatoes)/40…...

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