Exhibit 28-2 Karl Can Produce Either 10 Tons of Oranges

question 132

Multiple Choice

Exhibit 28-2 Karl can produce either 10 tons of oranges or 5 tons of apples in a year,while Adam can produce either 5 tons of oranges or 10 tons of apples.
Refer to Exhibit 28-2.If the exchange rate between apples and oranges in international markets is 1 ton of apples per 3 tons of oranges:

• A) Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export oranges to other countries.
• B) Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export apples to other countries.
• C) Karl and Adam will trade apples and oranges with one another.
• D) Karl and Adam will not specialize or engage in international trade.

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Definitions:

Average Variable Cost

The cost of production that varies with the output level, calculated by dividing the total variable costs by the number of units produced.

Average Product

is the output per unit of input, such as the quantity of goods produced per labor hour, and is used to measure productivity.

Marginal Cost

The expenditure resulting from the creation of an additional unit of a product or service.

Short-run Total Cost

The total of all costs, both fixed and variable, that a firm incurs in producing goods or services in the short run.