Question

True or False. Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both gain from the exchange. We can conclude that, for Barney, the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.

Answer 1

False

Explanation:

Both do not gain from the exchange. If producing 1 pumpkin is greater than 2 tomatoes, this means that Barney traded for less than he gave out in cost to produce 1 pumpkin. Barney should be demanding more tomatoes to make up the cost of producing 1 pumpkin. Fred makes a gain from the transaction. The selling price of tomatoes are less than a pumpkin. He can therefore sell 1 pumpkin to produce more than 2 tomatoes per pumpkin.