Question

In: Economics

Country Alphaduck Country Bisonville MPL of duck feathers 20 10 MPL of wood 4 1 Which...

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

Solutions

Expert Solution

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.


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