In the diagram to the right the curve labeled SS displays the relationship betwe

Question

In the diagram to the right the curve labeled SS displays the relationship between the relative price of cigars to soybeans (Pc/Ps) and the wage-rental ratio (w/r). From the slope of this curve, it can be determined that Relative price of cigars, Pc/Ps OA. O B. O C. a higher relative wage impacts soybean production costs more than cigar production costs. soybeans are labor-intensive while cigars are capital-intensive cigars are labor-intensive while soybeans are capital-intensive D. neither good is capital-intensive. Wage-rental ratio, wtr

Explanation / Answer

Answer : Option A is correct. Every company decide a limit of production cost. According to the question the produces two commodities : Cigar and soybean. Now if relative price of cigar is increased then the production cost is reduced by the company because of limited production cost budget. Therefore, in this case relative higher production cost of any good has more impact on another good's production cost.

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