Question

Suppose that Katniss and Peeta have been exiled on a deserted island. To feed themselves, they need to catch fish and hunt rabbits. The table below shows the production potential of Katniss and Peeta. If Katniss spends all her time fishing, she can catch 40 fish. If she spends all her time hunting rabbits, she can catch 20 rabbits. Peeta can spend all his time on fish and catch 8 fish or all his time on rabbits and catch 12 rabbits. Both Katnis and Peeta face a constant trade-off between catching fish and hunting rabbits.
Suppose Katniss and Peeta specialize and trade. For trade to be mutually beneficial, the price of a rabbit should be more than ___fish but less than___fish

Answer 1

Answer:

For trade to be mutually beneficial, the price of a rabbit should be more than _0.75__fish but less than_2_fishes

Explanation:

1. Let's review the information provided to us to answer the question correctly:

Katniss can catch 40 fish if she spends all her time fishing

Katniss can catch 20 rabbits if she spends all her time hunting

Peeta can catch 8 fish if she spends all her time fishing

Peeta can catch 12 rabbits if she spends all her time hunting

2. Suppose Katniss and Peeta specialize and trade. For trade to be mutually beneficial, the price of a rabbit should be more than ___fish but less than___fish

For answering this question, we need to calculate the cost of opportunity of Katniss and Peeta after they start to specialize and trade. According to the information given, Katniss is more efficient fishing and Peeta is more efficient hunting rabbits.

The cost of opportunity of Katniss hunting one rabbit is two fishes. In the same amount of time she can fish twice as many rabbits she can hunt (40/20).

The cost of opportunity of Peeta hunting one rabbit is 0.75 fishes. In the same amount of time he can fish 0.75 as many rabbits he can hunt (8/12).

Upon saying that, for trade to be mutually beneficial, the price of a rabbit should be more than _0.75__fish but less than_2_fishes.