Solving problem on opportunity cost

Reference no: EM1375287

Assume that there are 2-states that do not trade, Iowa and Nebraska. Each state manufacture the similar two goods: corn and wheat. For Iowa the opportunity cost of manufacturing 1 bushel of wheat is three bushels of corn. For Nebraska the opportunity cost of producing 1 bushel of corn is 3 bushels of wheat. Present production is:

Iowa Nebraska
Wheat 20 million bushels 120 million bushels
Corn 120 million bushels 20 million bushels

a. Describe how, with trade, Nebraska can wind up with forty million bushels of wheat and 120 bushels of corn while Iowa can wind up with 40 million bushels of corn and 120 million bushels of wheat. b. If the states ended up with the numbers given in a, how much would the trader get?

Reference no: EM1375287

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