Shirt Shack Red Shirts Per Worker Per Hour Blue Shirts Per Worker Per Hour 3 3 Just Shirts 2 1 The following table describes the production possibilities for producing shirts for tourists by two businesses. For example, the table reports that Shirt Shack can produce 3 red shirts in one hour, whereas Just Shirts can produce 2 red shirts in one hour. a) Suppose that the two companies decide to specialize and trade with each other to increase their output. Which colour shirt should Shirt Shack produce? Which colour shirt should Just Shirts produce? You must provide support for your conclusions. b) Identify the bounds on the terms at which they would agree to trade shirts? Express your answer in terms of the amount of red shirts that would be ‘paid’ for a blue shirt. Explain your answer.

Shirt Shack Red Shirts Per Worker Per Hour Blue Shirts Per Worker Per Hour 3 3 Just Shirts 2 1 The following table describes the production possibilities for producingshirts for tourists by two businesses. For example, the table reports that Shirt Shack can produce 3 red shirts in one hour, whereas Just Shirts can produce 2 red
shirts in one hour. a) Suppose that the two companies decide to specialize and trade with each other to increase their output. Which colour shirt should Shirt Shack
produce? Which colour shirt should Just Shirts produce? You must provide support for your conclusions. b) Identify the bounds on the terms at which they would agree
to trade shirts? Express your answer in terms of the amount of red shirts that would be ‘paid’ for a blue shirt. Explain your answer.

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