Winnie and Tigger both need to gather honey and also pick some...

Winnie and Tigger both need to gather honey and also pick some berries. The following table describes how much each of them can accomplish in one hour if that hour is spent either picking berries or gathering honey:

Berries Picked in 1 Hour: Honey gathered in 1 Hour:

Tigger: either 3 pints of Berries or 1 pint of Honey

Winnie: either 6 pints of Berries or 6 pints of Honey

(a) Calculate the opportunity costs of both activities for both Winnie and Tigger

(b) Demonstrate that they could both be made better off by trading tasks and specializing.

(c) Use a diagram which shows how the production possibilities curve for an 8 hour workday for Tigger might shift if the two of them were to reach an agreement to trade berries for honey at the average (or mean) opportunity cost of honey in terms of berries for the two of them.

a) Opportunity cost for :

Winnie: If he chooses to pick berries only then he will lose 6 pints of honey. And, if he chooses to gather honey only then he will lose 6 pints of berries.

Tigger: If he chooses to pick berries only then he will lose 1 pint of honey. And if he chooses to gather honey only then he will lose 3 pints of berries.

(b)

Tigger gives up 1/3 pint of honey for each berry and 3 pints of berries for each honey.

Winnie gives up 1 pint of honey for 1 berry and 1 pint of berry for 1 honey.

It is clear that tigger gives up lesser honey for each berry. Which means Tigger has comparative advantage in berry. Similarly, winnie has comparative advantage in honey.

So, if Tigger only produces berries, he will produce 3 berries. If Winnie only gathers honey, he will get 6 honey.

Now, assuming that each of them were spending half an hour on each products earlier. They had

Tigger:1.5 berries, .5 honey
Winnie: 3 berries, 3 honey

Total production was 4.5 berries, 3.5 honey

When specializing, total production is 3 berries, 6 honey. So they have increased honey by 2.5 while sacrificing 1.5 berries. They are now better off.

please see the attached file for the complete solution.