Exchange rate for a ton of cereal

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Q1. In country A the opportunity cost of a ton of cereal is 100 gallons of beer. In country B the opportunity cost of 100 gallons of beer is 0.95 tons of cereal. Both countries can experience gains from trade if the exchange rate for a ton of cereal is 96 gallons of beer. Why is the answer to this question false?

Q2. A firm incurs production costs C(q) = F + mq, and transportation costs T(q) = aq + bq^2, where q is the output of each of its plants. What is the optimal plant size, and how does it vary with the parameters F, m, a and b?

Reference no: EM136757

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