Question 10 11 pts Table 34 Assume that the farmer and the r

Question 10 1/1 pts Table 3-4 Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate. Labor Hours Needed Pounds Produced to Make 1 Pound of in 24 Hours Meat Potatoes Meat Potatoes 8 12 4 armer er Refer to Table 3-4. Without trade, the farmer produced and consumed 2 pounds of meat and 4 pounds of potatoes and the rancher produced and consumed 4 pounds of meat and 2 pounds of potatoes. Then, each person agreed to specialize in the production of the good in which they have a comparative advantage and trade 3 pounds of meat for 6 pounds of potatoes. As a result, the farmer gained gounds of imeat and 12 pounds of potatoes and the rancher gained 6 pounds of meat and 8 bounds of potatoes. fmeat and 6 pounds of potatoes and the rancher gained 5 pounds of meat and of meat and 2 pounds of potatoes orrect 1 pound of meat and 2 pounds of potatoes and the rancher gained 1 pound of meat and 4 pounds of potatoes Question 11 1/1 pts

Solution

Utilizing 24 hours, farmer can produce either 3 pounds of meat or 12 pounds of potatoes.

So, for farmer, the opportunity cost of producing 1 pound of meat is (12/3) 4 pounds of potatoesand the opportunity cost of producing 1 pound of potato is (3/12) 1/4 pounds of meat.

Utilizing 24 hours, rancher can produce either 8 pounds of meat or 4 pounds of potatoes.

So, for rancher, the opportunity cost of producing 1 pound of meat is (4/8) 1/2 pound of potatoes and the opportunity cost of producing 1 pound of potatoes is (8/4) 2 pounds of meat.

It can be seen that farmer can produce potato at lower opportunity cost than rancher. So, farmer has comparative advantage in production of potatoes and will specialize in production of potatoes.

Rancher can produce meat at lower opportunity cost than farmer. So, rancher has comparative advantage in production of meat and will specialize in production of meat.

With specialization, farmer is able to produce 12 pounds of potatoes while rancher will produce 8 pounds of meat.

Exchange ratio is 3 pounds of meat for 6 pounds of potatoes.

So, after trade, farmer will have 3 pounds of meat and 6 pounds of potatoes and rancher will have 5 pounds of meat and 6 pounds of potatoes.

Given their non-trade consumption and production, after trade, the farmer gained 1 pound of meat and 2 pounds of potatoes and the rancher gained 1 pound of meat and 4 pounds of potatoes.

Hence, the correct answer is the option (4).