Question

Robinson Crusoe can bake 10 loaves of bread in one hour or peel 20potatoes. Friday can...

Robinson Crusoe can bake 10 loaves of bread in one hour or peel 20potatoes. Friday can bake 5 loaves of bread in an hour or peel 30 potatoes

If they believe in equality in consumption, would they specialise and trade?

If so, at what price will they exchange bread for potatoes?

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Answer #1

Opportunity cost of baking 1 loaves of bread for Robinson = 20/10 = 2 potatoes

Opportunity cost of baking 1 loaves of bread for Friday = 30/5 = 6 potatoes

Opportunity cost of peeling 1 potato for Robinson = 10/20 = 0.5 loaves of bread

Opportunity cost of peeling 1 potato for Friday = 5/30 = 0.1667 loaves of bread

So we can say that Friday will specialize in the production of potatoes and Robinson will specialize in the production of loaves of bread. And after specialization, the total production will be 10 loaves of bread and 30 potatoes

If they both believe in equal consumption, both will have 5 loaves of bread and 15 potatoes. So for this, Robinson will give 5 loaves of bread to Friday and in return, Friday will give 15 potatoes to Robinson. So the price at which they will exchange bread for potatoes is 3 potatoes for 1 loaf of bread.

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