Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of \(\$ 10\) per phone and South Korea can produce 50 million mobile phones at \(\$ 5\) per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?

Short Answer

Expert verified
The minimum price at which both South Korea and Taiwan will engage in trade is \(\$ 10\) per phone.

Step by step solution

01

Identify the production costs of each country

We are given the production costs for each country: Taiwan produces one million mobile phones per day at a cost of \(\$10\) per phone, and South Korea produces 50 million mobile phones at a cost of \( \$5\) per phone.
02

Find the minimum price at which both countries will engage in trade

Since the minimum price should cover the production costs of both countries, we should compare the costs and identify the higher production cost to find the minimum price. In this case, Taiwan's production cost is \(\$ 10\) per phone, which is higher than South Korea's production cost of \(\$ 5\) per phone. Thus, the minimum price for both countries to engage in trade would be at least equal to or higher than Taiwan's production cost, i.e., \(\$ 10\) per phone.
03

Conclusion

Therefore, the minimum price at which both South Korea and Taiwan will engage in trade is \(\$ 10\) per phone.

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