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A) Note that based on the information given, Candonia has a comparative advantage in the production of Sugar, while Desonia has a comparative advantage in the production of Grain.
B) Suppose that Candonia and Lamponia specialize in the production of goods in which each has a comparative advantage. After specialization, the two countries can produce a total of 48 million pounds of grain and 48 million pounds of sugar.
In an economic model, agents have a comparative advantage over others if they can manufacture that good at a lower relative opportunity cost or autarky price, i.e. at a significantly smaller marginal cost prior to the trade.
The capacity of an economy to produce a certain item or service with a lower opportunity cost than its trade counterparts is referred to as comparative advantage. The concept of comparative advantage is used to demonstrate why organizations, governments, or people profit from the trade.
In the above example, Candonia's opportunity cost is 32 million pounds of grain, while Desonia's is 24 million pounds of sugar.
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