Question

Answer the question on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.

On the basis of the given information

a. Gamma should export both tea and pots to Sigma
b. Sigma should export tea to Gamma and Gamma should export pots to Sigma
c. Gamma should export tea to Sigma and Sigma should export pots to Gamma
d. Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots

Answer 1

The correct answer is "C"

Step-by-step explanation:

Production prospects Frontier utilizes the idea of chance expense of creation. It is the measure of other great relinquished or not created so as to deliver a specific decent.

For Gamma, the opportunity cost of delivering one unit of tea is 120/120 = 1 unit of pot. For Sigma, this open door cost is 120/40 = 3 units of pot. It shows that the open door cost of delivering tea is lower in Gamma. Consequently Gamma ought to represent considerable authority in the creation of tea and should trade it. Sigma ought to represent considerable authority underway of pots and fare it.