Brett has almond orchards, but he is sick of almonds and prefers to eat walnuts instead. The owner of the walnut orchard next door has offered to swap this year's crop with him. Assume he produces tons of almonds and his neighbor produces tons of walnuts. If the market price of almonds is per ton and the market price of walnuts is per ton: a. Should he make the exchange? b. Does it matter whether he prefers almonds or walnuts? Why or why not?

Answer and Explanation:

a. Market Value of Almonds = 1,015 * 107

= $108,605‬.

Market value of Walnuts = 779 * 111

= $86,469‬

Brett's almonds are worth more than his neighbor's walnuts so he should not make the trade.

b. His preference does not matter.

What matters is the market value of the crops. With the amount he makes from selling his almonds, he will be able to buy more walnuts than his neighbor is offering if he really wants walnuts.

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