Question

Kairi owns an ice cream parlor. In one hour she can produce 10 milkshakes or 30 sundaes. Sora also owns an ice cream parlor. In one hour he can produce 8 milkshakes or 16 sundaes.

A mutually beneficial term of trade for 1 milkshake would be for more than ____, but less than ____ sundae(s).

       
3; 1/2

       
1/3; 1/2

       
2; 3

       
3; 2

       
1/3; 2

Answer 1

In one hour Kairi's can produce 10 milkshakes or 30 sundaes. This means that in order to produce 10 milkshakes she will have to sacrifice 30 sundaes, This In order to produce 1 milkshakes she will have to sacrifice 10/30 = 1/3 sundaes, Thus opportunity cost producing 1 milkshake for Kairi is 1/3 sundae.

In one hour Sora can produce 8 milkshakes or 16 sundaes. This means that in order to produce 8 milkshakes she will have to sacrifice 16 sundaes, This In order to produce 1 milkshakes she will have to sacrifice 8/16 = 1/2 sundaes, Thus opportunity cost producing 1 milkshake for Sora is 1/2 sundae.

Hence, opportunity cost of producing milkshake is lesser for Kariri. Thus Kairi will specialize in making milkshake.

Kairi will be better off if she gets more than 1/3 sundae and Sora will get benefited if Sora pays less than 1/2.

So, A mutually beneficial term of trade for 1 milkshake would be for more than 1/2 but less than 1/3 sundae.

Hence, the correct answer is (b) 1/3; 1/2.