Inputs per unit of strawberry output If Birdy international

Inputs per unit of strawberry output

If Birdy international trade were allowed, what price ratio would prevail between the strawberry and curtain within Birdy Island? Ducky Island?

A0.75 S/C in Birdy while 1 S/C in Ducky.

B1.5 C/S in Birdy while 2 C/S in Ducky.

C0.75 C/S in Birdy while 1 C/S in Ducky.

D1.33 C/S in Birdy while 1 C/S in Ducky.

Solution

Ans:

Explanation:

In Birdy,

The opportunity cost of 1 curtain = 60 / 80 = 0.75 strawberry

The opportunity cost of 1 strawberry = 80 / 60 = 1.33 curtain

In Ducky,

The opportunity of 1 curtain = 40 / 40 = 1 strawberry

The opportunity cost of 1 strawberry = 40 / 40 = 1 curtain