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Answer :
The scenario involves calculating opportunity costs and determining comparative advantage in production between two countries with different labor and capital endowments. The decision of what to produce is based on the principle of comparative advantage, where countries produce and trade goods at a lower opportunity cost.
The given scenario focuses on the production possibility of a manufacturing firm with two plants, Plant R and Plant S, capable of producing radios and calculators. The firm must decide how to allocate its labor and capital resources to maximize production based on the comparative advantage of each plant. The principles of the comparative advantage involve determining the opportunity cost of producing additional units of one good over another.
Comparative advantage is established by identifying which country or plant can produce a good at a lower opportunity cost compared to others. Taking into account Canada's and Mexico's endowments in capital and labor, and considering if one country is more capital intensive (Canada with LCD TVs) and the other is more labor intensive (Mexico with tennis racquets), the opportunity cost of producing an additional item in each country would guide their production and trade decisions.
Moreover, when considering the United States and Mexico with an equal number of workers, the productivity in producing shoes and refrigerators and the resulting quantities can inform about the efficiency and comparative advantage of each country in producing these goods.
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