Suppose Country A, a labor-abundant country, produces only drink and furniture. The following equations illustrate the prices and costs of drink and furniture in the country, where the numbers indicate the amounts of labor and land needed to produce a unit of drink and furniture. 'W' is the wage rate and 'r' is the rental rate of land. Price of drink = 1w + 2r Price of furniture = 2w + 1r According to this information, which of the following statements is true? Multiple Choice The land to labor ratio in the production of furniture is higher than that in the production of drink. Labor is used relatively intensively in the production of furniture. The opportunity cost of producing furniture is higher than the opportunity cost of producing drink in Country A. The inputs are used in the same proportion in producing both commodities.

Labor is used relatively intensively in the production of furniture.

Explanation:

Labour is paid wages and land is paid rent. So the number with w in front of it is the amount of labour needed in production and the number with r in front of it is the amount of land needed for production.

2 units of Labour are used in the production of furniture while one unit of labour is used in the production of drink.

The ratio of Labour to land in the production of land is 2:1, while, it is 1:2 in the production of drinks. Thus, input are not used in the same proportion in producing both commodities.

The opportunity cost of both activities are equal since both activities use the same total amount of inputs.

The land to labour ratio in the production of furniture is 1/2 while it is 2/1 in the production of drinks. Thus, the ratio is relatively lower in the production of furniture.

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