Ricardian Model: Production Possibility Frontier, Opportunity Cost, and Relative Price

To graph Home's production possibility frontier, we need to determine the maximum production levels of airplanes and cars given the available labor.

For Home, the production possibilities are given by:

Airplanes: aLA * LA = 1 * 900 = 900 Cars: aLC * LC = 5 * 900 = 4500

We can plot these points on a graph, where airplanes are on the x-axis and cars are on the y-axis. Connecting these points gives us Home's production possibility frontier:

(900, 0) - (900, 4500)

The opportunity cost of airplanes is the amount of cars that Home must give up to produce one additional airplane. This can be calculated by taking the slope of the production possibility frontier. In this case, the opportunity cost of airplanes is 5 cars.

In the absence of trade, the price of airplanes in terms of cars would be determined by their opportunity cost. Since the opportunity cost of airplanes is 5 cars, the price of airplanes would be 5 cars.