Suppose there are two individuals, Casey and Rick, who live in a very simplified world where only two goods are produced and consumed: rice and beans. The production opportunity cost for Casey is 4.00 kg4.00 kg of rice for every kilogram of beans. Rick has a production opportunity cost of 2.00 kg2.00 kg of rice for every kilogram of beans.Casey eventually realizes that, through trade, both individuals can be better off. Rick is willing to trade. What price can be settled between these two parties such that both individuals can enjoy more rice and beans? Give your answer to two decimals.

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Asked Feb 5, 2020
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Suppose there are two individuals, Casey and Rick, who live in a very simplified world where only two goods are produced and consumed: rice and beans. The production opportunity cost for Casey is 4.00 kg4.00 kg of rice for every kilogram of beans. Rick has a production opportunity cost of 2.00 kg2.00 kg of rice for every kilogram of beans.

Casey eventually realizes that, through trade, both individuals can be better off. Rick is willing to trade. What price can be settled between these two parties such that both individuals can enjoy more rice and beans? Give your answer to two decimals.

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Expert Answer

Step 1

Opportunity cost (OC) of one good (commodity) in terms of other is the units of production of another commodity which is foregone by producing that good in place of others.

For example, consider two individuals Casey and Rick given in the question ...

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