Consider a World of Two Countries Producing Only Wheat and Cloth.If

question 71

Multiple Choice

Consider a world of two countries producing only wheat and cloth.If country A uses 1 unit of labour to produce 1 unit of wheat and 2 units of labour to produce 1 unit of cloth,while B uses 3 units of labour per unit of wheat and 4 units of labour per unit of cloth,A should export

• A)wheat and cloth,and B should not export anything.
• B)wheat,and B should export cloth.
• C)nothing,and B should export wheat and cloth.
• D)cloth,and B should export wheat.

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Definitions:

Operating Leverage

The degree to which a firm or project can increase operating income by increasing revenue, reflecting the fixed versus variable cost structure.

Clockworks Co.

A hypothetical or generic name that could be used to refer to a company specializing in mechanical devices, especially those involving gears and timekeeping mechanisms.

Contribution Margin Ratio

The ratio that indicates the percentage of each sale that exceeds the variable costs, calculated by subtracting variable costs from sales revenue and dividing by sales revenue.

Fixed Costs

Fixed costs are business expenses that do not change with the level of goods or services produced, such as rent, salaries, and insurance premiums, providing stability in business planning.