Question

In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, John can produce either 8 loaves of bread or 8 pounds of butter. The opportunity cost of producing 1 pound of butter is
a. 1/3 hour for Andy and 1 hour for John.
b. 1 hour for Andy and 1 hour for John.
c. 3 loaves of bread for Andy and 1 loaf of bread for John.
d. 1/3 loaves of bread for Andy and 1 loaf of bread for John.
e. none of the above

Answer 1

Answer:

Option (c) is correct.

Explanation:

Andy can produce 24 loaves of bread or 8 pounds of butter:

Opportunity cost of producing 1 pound of butter = (24 ÷ 8)

                                                                                 = 3 loaves of bread

John can produce 8 loaves of bread or 8 pounds of butter:

Opportunity cost of producing 1 pound of butter = (8 ÷ 8)

                                                                                 = 1 loaves of bread

Therefore,

John has a comparative advantage in producing butter because of lower opportunity cost.

Hence, the opportunity cost of producing 1 pound of butter is 3 loaves of bread for Andy and 1 loaves of bread for John.