George and Bill are stranded on a desert island with coconuts and bananas to produce. George can produce 5 coconuts and 1 banana or 6 coconuts alone, while Bill can produce 1 coconut and 3 bananas or 8 bananas alone. To determine their specialization: George's opportunity cost to produce a coconut is 5 bananas while Bill's is 1/3 bananas, so Bill has a comparative advantage in coconuts and George in bananas. Therefore, George should specialize in bananas, producing 40, while Bill specializes in coconuts, producing 36.

1. George and Bill are stuck together on a desert island. There are two goods, Coconut (C) and
Bananas (B). George has production function 5C+B=40, while Bill has production function
C+3B=36. If they could not trade, George would choose to product 6C, while Bill would
produce 8B. 1: Figure out George's opportunity cost;2: Figure out Bill's opportunity cost;3:
Figure out each partys comparative advantage;4: Determine which good each party should
specialize in, and determine production.
Solution
1. George's opportunity cost of producing a cocunut is giving up 5 bananas. It can be calculated
by finding the slope of the production possibility function - dB/dC = -5
2. Bill's opportunity cost of producing a cocunut is giving up 1/3 bananas. It can be calculated
by finding the slope of the production possibility function - dB/dC = -1/3
3. As can be verified, opportunity cost of producing a cocument is less in case of Bill. Hence,
Bill has a comparative advantage in producing cocunut. On the other hand, George has a
comparative advantage in producing banana.
4. George should specialize in producing bananas while Bill should specialize in producing
cocunuts.
As a result, the George will produce 40 bananas and Bill will produce 36 cocunuts.