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Suppose that Katniss and Peeta have been exiled on a deserted island. To feed themselves, they need to catch fish and hunt rabbits. The table below shows the production potential of Katniss and Peeta. If Katniss spends all her time fishing, she can catch 40 fish. If she spends all her time hunting rabbits, she can catch 20 rabbits. Peeta can spend all his time on fish and catch 8 fish or all his time on rabbits and catch 16 rabbits. Both Katnis and Peeta face a constant trade-off between catching fish and hunting rabbits.

Weekly Catch
Fish Rabbits
Katniss 40 20
Peeta 8 16

A. Katniss's opportunity cost for catching 1 rabbit is _ fish.

B. Peeta's opportunity cost for catching 1 rabbit is fish.

C. Suppose Katniss and Peeta specialize and trade. For trade to be mutually beneficial, the price of a rabbit should be more than fish but less than ___ fish.

C. Suppose Katniss and Peeta specialize and trade. For trade to be mutually beneficial, the price of a rabbit should be more than _____.5_____fish but less than _____2______ fish.

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akindelemf akindelemf · Answer 2 · 2020-03-03T10:04:16+01:00

Answer:

A) 4 fish.

B) 0.5 fish.

C) The price of rabbit should be more than 0.5 fish but less than 4 fish.

Explanation:

A)

Katniss can either catch 40 fish or can hunt 10 rabbits.

So, the opportunity cost of catching 1 rabbit = 40/10 = 4 fish.

Therefore, Katniss's opportunity cost of catching 1 rabbit is 4 fish.

B)

Peeta can either catch 8 fish or can hunt 16 rabbits.

So, the opportunity cost of catching 1 rabbit = 8/16 = 0.5 fish.

Therefore, Peeta's opportunity cost for catching 1 rabbit is 0.5 fish.

C) With no trade, Peeta has to give up 0.5 fish for 1 rabbit while Katniss has to give up 4 fish for 1 rabbit.

These opportunity costs bound the lower and upper limit of trade.

For trade to be mutually beneficial, the price of rabbit should be more than 0.5 fish but less than 4 fish.