Karl Can Produce Either 10 Tons of Oranges or 5

question 59

Multiple Choice

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 in a year. Which of the following terms of trade would allow both Karl and Adam to gain from specialization and trade?

• A)1 ton of apples per 2.5 tons of oranges
• B)1 ton of apples per 1.5 tons of oranges
• C)1 ton of apples per 0.25 ton of oranges
• D)1 ton of apples per 0.5 ton of oranges
• E)1 ton of apples per 3 tons of oranges

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Definitions:

Fixed Cost Method

An accounting strategy where fixed costs are expensed in the period they occur, without regard to changes in the volume of production or sales.

Cost-Plus Approach

A pricing strategy where the selling price is determined by adding a specific markup to the cost of producing or purchasing the product.

Differential Profit

The change in profit resulting from choosing one option over another in decision-making processes.

Fixed Expenses

Costs that do not change with the level of production or sales activities, such as rent, salaries, and insurance.