Northistan contains 200 acres of agricultural land on which it can grow rice or peas. Each acre
Question:
Northistan contains 200 acres of agricultural land on which it can grow rice or peas. Each acre can yield either 4 pounds of rice or 3 pounds of peas annually. In neighbouring Southland, with 400 acres of crop land, the yields are 3 pounds of rice or 1 pound of peas per acre.
a) Explain what is a production possibilities frontier. [2 points]
b) Sketch and label the annual production possibilities frontier for both countries. (Place
peas on the horizontal axis.)
c) Which product should each country specialize in and why?
d) If the world market price of rice is $10 per pound and for peas is $20 per pound, demonstrate how Northistan is better off by trading.
Fundamental Managerial Accounting Concepts
ISBN: 978-0078025655
7th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip Old