Question

Country Alphaduck Country Bisonville MPL of duck feathers 20 10 MPL of wood 4 1 Which of the following is true for the table above?

The international relative price of wood is between 5 and 10.

Country Alphaduck has the comparative advantage in duck feathers T

he international relative price of wood is between 0.1 and 0.2.

Country Bisonville has the absolute advantage in wood

Answer 1

We can see from above that In Alpha duck country, 1 additional labor can produce either 20 duck feathers or 4 woods. Thus, in order to produce 20 duck feathers Alpha duck has to sacrifice 4 woods. Hence, In order to produce 1 duck feathers Alpha duck has to sacrifice 4/20 = 0.2 woods. Hence opportunity cost of duck feather in Alphaduck is 0.2 woods. Hence opportunity cost of wood in Alphaduck is 1/0.2 = 5 duck feathers.

Also, We can see from above that In Bisonville country, 1 additional labor can produce either 10 duck feathers or 1 woods. Thus, in order to produce 10 duck feathers Bisonville has to sacrifice 1 woods. Hence, In order to produce 1 duck feathers Bisonville has to sacrifice 1/10 = 0.1 woods. Hence opportunity cost of duck feather in Bisonville is 0.1 woods..Hence opportunity cost of wood in Bisonville is 1/0.1 = 10 duck feathers.

Hence, Alpha duck has comparative advantage in producing duck feathers. Alphaduck will export if it gets more that 5 duck feathers per wood and Bisonville will import if it pays lesser than 10 duck feathers per wood. Hence, The international relative price of wood is between 5 duck feathers and 10 duck feathers.

Hence, the correct answer is (a) The international relative price of wood is between 5 and 10.