California is very fertile. Farmers can produce avocados and corn on their land, 6 and 10 units per unit of land respectively. They have 5 units of land. In the Canadian prairies one can also grow avocados and corn, at 1 and 5 units per unit of land. There are 15 units of land. Assume both countries have perfectly competitive markets. Let the utility function of consumers in each country be U = A1/2C 1/2 . Demands are thus A = I/(2pA) and C = I/(2pC ).

Now assume instead that Canadian farmers can grow avocados much better, they produce 5 units per unit of land. What does the new market price for avocados have to be if Canadians produce both avocados and corn? What will Californian farmers produce then? How much corn will Canadian farmers produce?