1. U.S.; U.S.; the U.S. outproduces France in both goods
2. France; U.S.; the country that sacrifices the least will have comparative advantage
3. France
4. U.S.
5. The country with comparative (i.e., relative) advantage in production should produce that good
Need more of an explanation?
1. Who has absolute advantage in wine? 10>5 so, the U.S.
Who has absolute advantage in cheese? 10>2 so, the U.S.
Why? U.S. outproduces France in both goods.
2. Who has comparative advantage in wine? France, because it sacrifices less cheese than the U.S. when it produces wine.
Think of it this way .......
In France, producing 1 unit of wine is the loss of only 0.4 units of cheese; whereas, in the U.S., producing 1 unit of wine is the loss of 1 unit of cheese. Since France sacrifices less cheese to produce wine means that France has comparative (i.e., relative) advantage in wine production.
Who has the comparative advantage in cheese? The U.S., because it sacrifices less wine than France when it produces cheese.
Think of it this way .......
In France, producing 1 unit of cheese is the loss of 2.5 units of wine; whereas, in the U.S., producing 1 unit of cheese is the loss of only 1 unit of wine. Since the U.S. sacrifices less wine to produce cheese means that the U.S. has comparative (i.e., relative) advantage in cheese production.
Why? The country that sacrifices the least (i.e., has the lowest opportunity cost) will have comparative advantage.
3. Who should produce wine? France, because France has comparative advantage in wine production.
4. Who should produce cheese? U.S., because the U.S. has comparative advantage in cheese production.
5. Why? See above explanation.
