If a country's workers can produce 10 hamburgers per hour or 5 bags of French fries per hour.If there is no trade, the price of 1 bag of fries is 2 hamburgers.

Question

Quizplus · Accepted Answer

Since the price of 1 bag of fries is 2 hamburgers, we can say that the opportunity cost of producing 1 bag of fries is 2 hamburgers. Therefore, if the workers produce 5 bags of French fries per hour, they would have to give up the production of 10 hamburgers (opportunity cost) per hour. This means the production possibility frontier (PPF) for this economy will be a straight line with a slope of -2/1 (meaning that for every 2 bags of French fries produced, 1 hamburger is given up). Hence, the price ratio between the two goods will be 2:1.

If a Country's Workers Can Produce 10 Hamburgers Per Hour