Answer:
(a) Which island has an absolute advantage in producing coconuts? Explain.
No island has absolute advantage in producing coconuts because both Zeetopia and Freshland can produce equal number of coconuts (50 each).
(b) Which island has a comparative advantage in producing coconuts? Explain.
Freshland has a comparative advantage in producing coconuts. Freashland's opportunity cost of producing coconuts (30/50 = 0.6 mangoes) is lower than Zeetopia's 60/50 = 1.2 mangoes). So, Freshland has a comparative advantage in producing coconuts
(c) Assume Zeetopia and Freshland decide to specialize according to their comparative advantages and 1 ton of coconuts is exchanged for 1 ton of mangoes. Are specialization and trade under these terms beneficial to both Zeetopia and Freshland? Explain.
Yes, the terms of trade (1 ton of coconut = 1 ton of mangoes) are beneficial for both islands.
For Zeetopia, opportunity cost of 1 ton of coconut is1.2 tons of mangoes (60/50 = 1.2). So, when it specializes in mangoes, it should get 1 ton of coconut for less than 1.2 tons of mangoes (or, it should give up less than 1.2 tons of mangoes to obtain 1 ton of coconuts). So, 1 ton of coconut = 1 ton of mangoes is beneficial for Zeetopia.
Similarly, the opportunity cost of 1 ton of coconuts for Freshland is 0.6 tons of mangoes. So, when it specializes in coconuts, it should get more than 0.6 tons of mangoes in return for 1 ton of coconuts. So, 1 ton of coconut = 1 ton of mangoes is beneficial for Freshland.
(d) The graph:
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(e) Point X is unattainable for Freshland but feasible and inefficient for Zeetopia.