Use the following to answer question(s): Production Possibilities for Machinery and Petroleum

-(Exhibit: Production Possibilities for Machinery and Petroleum) Assuming constant costs in the neighborhood of their current levels of production, the exhibit shows the number of units of machinery each country would have to forgo in order to produce the additional petroleum indicated.A terms-of-trade equation that could emerge as a result of trade between the two countries is:

Question

Use the following to answer question(s): Production Possibilities for Machinery and Petroleum
 
-(Exhibit: Production Possibilities for Machinery and Petroleum) Assuming constant costs in the neighborhood of their current levels of production, the exhibit shows the number of units of machinery each country would have to forgo in order to produce the additional petroleum indicated.A terms-of-trade equation that could emerge as a result of trade between the two countries is:

Quizplus · Accepted Answer

Given constant costs, the terms of trade should fall between the opportunity costs of the two countries. Without the specific exhibit, we can infer that the correct answer would be a ratio that benefits both countries compared to their domestic opportunity costs. "1M = 2P" suggests a balanced trade-off that could be mutually beneficial, assuming one country has a comparative advantage in machinery and the other in petroleum.

Use the Following to Answer Question(s): Production Possibilities for Machinery