Use the Following to Answer Questions: Table: Production Possibilities for the United

question 122

Multiple Choice

Use the following to answer questions: Table: Production Possibilities for the United States and Mexico $$\begin{array} { l c c } \hline & \text { Corn (millions of tons) } & \text { Potatoes (millions of tons) } \\\hline \text { United States } & 50 & 10 \\\text { Mexico } & 40 & 5 \\\hline\end{array}$$
-(Table: Production Possibilities for the United States and Mexico) Using the table on production possibilities for the United States and Mexico, assume each country specializes in the good for which it has a comparative advantage. Which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.)

• A) 0.2 potato for one corn < Trade price < five corns for one potato
• B) 0.125 potato for one corn,< Trade price < eight potatoes for one corn
• C) five corns for one potato < Trade price < eight corns for one potato
• D) 0.125 potato for one corn < Trade price < five potatoes for one corn

---

Definitions:

Incremental Analysis

A decision-making technique used to determine the financial impact of different choices by comparing their costs and benefits.

Variable Cost

Expenses that fluctuate with production volume, such as direct materials and direct labor costs.

Fixed Expenses

Fixed expenses are recurring costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.

Net Present Value

Net present value is a financial calculation that determines the worth of a project or investment by discounting its future cash flows to the present value using a specific discount rate, to assess its profitability.