Figure 7-8 shows the optimal input combinations for the production of a given quantity of cotton in the United Arab Emirates and in Egypt
-Refer to Figure 7 -8. Consider the following statements:
A. For each country, the marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital.
B. The price of labor is relatively higher in the United Arab Emirates than in Egypt and the price of capital is relatively lower in the United Arab Emirates than in Egypt.
C. The price of labor and the price of capital are relatively higher in the United Arab Emirates than in Egypt.
Based on Figure 7-8, which of the above statementsare true?
A) Statements b and c only.
B) All of the statements are true.
C) Statements a and c only.
D) Statements a and b only.

Question

Figure 7-8 shows the optimal input combinations for the production of a given quantity of cotton in the United Arab Emirates and in Egypt
-Refer to Figure 7 -8. Consider the following statements:
A. For each country, the marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital.
B. The price of labor is relatively higher in the United Arab Emirates than in Egypt and the price of capital is relatively lower in the United Arab Emirates than in Egypt.
C. The price of labor and the price of capital are relatively higher in the United Arab Emirates than in Egypt.
Based on Figure 7-8, which of the above statementsare true?
A) Statements b and c only. 
B) All of the statements are true. 
C) Statements a and c only. 
D) Statements a and b only.

Quizplus · Accepted Answer

Statement A is true because in an optimal allocation of resources, firms will allocate their spending between labor and capital in such a way that the marginal product per dollar spent on each is equalized across the two inputs. This is a fundamental principle of economic theory regarding the efficient allocation of resources. Statement B is true because differences in the relative prices of labor and capital between countries can lead to differences in the marginal product per dollar spent on these inputs, reflecting the principle of comparative advantage and the impact of local market conditions on factor prices. Statement C is incorrect because it generalizes the price levels of labor and capital without considering the specific relationship between their prices and their marginal products, which can vary independently of the general price level of these inputs in each country.

Figure 7-8 Shows the Optimal Input Combinations for the Production