Assume that there are only two countries: East and West both producing cups and plates. These two countries have identical demand, production technology, and resource endowment. Each country has 6,000 labor hours available of which it allocates equally to each industry. Labor requirements for a cup is 2 hours and for a plate is 4 hours. Labor requirement for cups does not change with the quantity of output. On the other hand, when East produces 1,750 or more plates, its labor requirement for plates decreases to 3 hours. What is the price of one cup (in terms of plate) for West?

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To determine the price of one cup in terms of plates for West lets start by calculating the producti... View the full answer