EXTRA CREDIT

QUESTION - GRAPH
EXPLANATION
THOMAS BOTTING
15505997
The graph on the left
represents the
relationship between
coal and wheat in
maximizing profit of
transportation (revenue costs). The lowest
dashed line forms the
feasible set (0,66.6
100,0) and is the
objective function (we
want to maximize this).
The thick black line
above this represents
the production frontier
where no specialization
takes place and at which
the ship and railroad carry wheat and coal in the same proportions. However, in order to find the
optimal solution we must consider the comparative advantage of the shippers/train loaders in
their transportation of coal and wheat. This is represented by the kink occurring at (50, 100), at
which the W = WS = 50 and C = CR = 100. Conversely, the comparative disadvantage can be
seen at (50, 30) where W = WR = 50 and C = CS = 30. The optimal solution, point (50, 100) lies
outside the non-specialization frontier and so requires specialization of Wheat Shipment and
Corn RailRoad transportation in order for comparative advantage to take place.