Clem Oatley would grow wheat and barley. He could grow 75 bushels of wheat or 12

Question

Clem Oatley would grow wheat and barley. He could grow 75 bushels of wheat or 125 bushels of barley using the same resources on an acre of his land. The price of Wheat is $2.00 per bushel and the price of barley is $0.80. Show the benefits to Clem from specialization. what should he specialize in?
Clem Oatley would grow wheat and barley. He could grow 75 bushels of wheat or 125 bushels of barley using the same resources on an acre of his land. The price of Wheat is $2.00 per bushel and the price of barley is $0.80. Show the benefits to Clem from specialization. what should he specialize in?

Explanation / Answer

Clem should specialize in the production of Wheat. WhenClem is producing only wheat i.e. specializing in the production of wheat, he is getting a return of (75 x 2) 150. But when he is specializing in the production of barley his return is only (120 x $0.80) 100.

After specializing in wheat Clem is earning 50 more than when he is specializing in Barley. So he should be specializing in the production of wheat.   

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