Question 7 1 pts Figure 3-10 Alice and Betty\'s Production Possibilities in one

Question

Question 7 1 pts Figure 3-10 Alice and Betty's Production Possibilities in one 8-hour day Alice's Production Possibilities Frontier Betty's Production Possibilities Frontier 500 450 400 350 300 250 200 - 150 100 500 450 400 350 300 230 B(180,180) 150 100 50 50 S0 100 1S0 200 250 300 350 400 ia S0 100 1S0 200 250 300 350 400 ia Refer to Figure 3-10. Which of the following statements is correct regarding comparative advantage? Betty has a comparative advantage in the production of both lemonade and pizzas. O Alice has a comparative advantage in the production of lemonade while Betty has a comparative advantage in the production of pizzas. Alice has a comparative advantage in the production of pizzas while Betty has a comparative advantage in the production of lemonade. Alice has a comparative advantage in the production of both lemonade and pizzas.

Explanation / Answer

Alice:

Opportunity cost of Pizzas = 400/200 = 2

Opportunity cost of Lemonade = 200/400 = 0.5

Betty:

Opportunity cost of Pizzas = 450/300 = 1.5

Opportunity cost of Lemonade = 300/450 = 0.67

So alice has comparative advantage in producing lemonade and betty has comparative advantage in producing pizza.

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