Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, a mutually advantageous trade can be struck at a price of one apple pie for 1/3 gallon of ice cream. a. True b. False

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Business

Avah Torres

7 December, 06:41

Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, a mutually advantageous trade can be struck at a price of one apple pie for 1/3 gallon of ice cream. a. True b. False

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Answers (1)

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Calderon · Answer 1

Answer: True

Explanation:

Ellie's opportunity cost of one apple pie = 1/2 gallon of ice cream

Brendan's opportunity cost of one apple pie = 1/4 gallon of ice cream

A country or a person has a comparative advantage in producing a product if the opportunity cost of producing that product is lower for that country or person as compared to other country or person.

From the above information, it is clear that Brendan's opportunity cost of producing apple is lower than the Ellie's opportunity cost of producing apple. So, Brendan has a comparative advantage in producing apple and hence, exports apple.

Hence, it is a beneficial trade for both the individual if the price of one apple is between 1/2 and 1/4 gallon of ice cream.

Therefore, if the price of one apple is 1/3 gallon of ice cream then this will be beneficial for both the producer.