Which of these statements is true about Valley Forge?
2 answers:
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Answer:
Emily's opportunity cost of producing 1 milkshake is 1 ice cream sundae.
Ben's opportunity cost of producing 1 milkshake is 0.5 ice cream sundae.
Explanation:
Both Emily and Ben own an ice cream parlor.
In an hour Emily can produce 40 milkshakes or 40 ice cream sundaes.
Emily's opportunity cost of producing a milkshake is
=
=
= 1 ice cream sundae
In an hour Ben can produce 20 milkshakes or 10 ice cream sundaes.
Ben's opportunity cost of producing a milkshake is
=
=
= 0.5 ice cream sundae
We see that Ben has a lower opportunity cost of producing milkshake, so we can say that he has a comparative advantage in producing milkshake.