Question

When trade occurs between two countries world price of that good falls between which two costs?

a) Marginal cost and fixed cost
b) Variable cost and total cost
c) Opportunity cost and production cost
d) Average cost and marginal cost

Answer 1

The world price of a good when trade occurs falls between the opportunity cost and production cost of that good, encompassing both fixed and variable production expenses.

Step-by-step explanation:

When trade occurs between two countries, the world price of that good falls between the opportunity cost and production cost of producing the good.

The opportunity cost measures the cost of foregone alternatives when a choice is made to produce a good, while the production cost involves the expenses associated with the creation of the product. These production costs can include both fixed costs, which do not change with the level of production, and variable costs, which fluctuate based on the quantity produced.