Question

Calvin and Hobbes run a company that sells wallet chains and wallet decals. Calvin is faster at making decals than chains, and Hobbes is faster at making chains than decals. Which statements accurately describe the situation?(A) Company output will be maximized if Calvin makes all the decals and Hobbes makes all the chains.(B) Calvin has a comparative advantage for making decals. (C) Hobbes has a higher opportunity cost for making decals than Calvin.(D) Company output will be maximized if Calvin and Hobbes both divide their time equally between making decals and making chains.

Answer 1

Answer:

Statements A, B and, C are correct.

Explanation:

Calvin can make decals faster and Hobbs can make chains faster. In other words, we can say that Calvin has a comparative advantage in making decals, while, Hobbs has a comparative advantage in making chains.

This means that Calvin has a low opportunity cost for producing decals and Hobbs has low opportunity cost for producing chains.  

The output will be maximized if Calvin makes decals and Hobbs makes chains.  

If both divide their time equally between making decals and chains, the output will not be maximized.