Explain why production is exactly the same at a price ratio

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Reference no: EM13202498

Consider an economy with just one technique available for the production of each good, food and cloth:

Good food Cloth
labor per unit output 1 1
labor per unit output 2 1

a. if consumers insist on trading four units of food for five units of cloth, what is the relative price of food? Why?

B. Explain why production is exactly the same at a price ratio of Pf/Pc = 1.1 as at Pf/Pc = 1.9.

Reference no: EM13202498

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