In the Figure Given Below AB Is the Production-Possibility Curve

question 42

Multiple Choice

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁ and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. In the absence of trade Canada will:

• A)produce and consume at point S_1.
• B)produce and consume at point C_0.
• C)produce at point S₁ and consume at point C_0.
• D)produce and consume at point C₁.

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Definitions:

Optimal Cost

The lowest possible cost at which a particular set of goods or services can be produced or acquired, taking into consideration factors such as efficiency and resource allocation.

Double-subscripted Variables

Variables in mathematical modeling that are indexed by two subscripts, often used to represent elements in matrices or two-dimensional arrays.

Price Range

The difference between the highest and lowest prices at which a commodity or service is traded over a particular period of time.