Question

An economy has two workers, Smith and Ricardo. Each day they work, Smith can produce 4 computers or 16 smartphones, and Ricardo can produce 6 computers or 12 smartphones. To maximize total output, Smith should specialize in producing ________, whereas Ricardo should specialize in producing ________.

Answer 1

Answer:

Ricardo should specialize in the production of computer because it has a lower opportunity cost.

Smith should specialize in the production of smart phone because of the lower opportunity cost.

Explanation:

The opportunity cost for Smith to produce 1 computer is 4 smartphone(s).

1:4

The opportunity cost for Ricardo to produce 1 computer is 2 smartphone(s).

1:2

The opportunity cost for Smith to produce 1 smartphone is 1/4 of a computer(s).

1:1/4

The opportunity cost for Ricardo to produce 1 smartphone is 1/2of a computer(s).

1:1/2

Ricardo should specialize in the production of computer because it has a lower opportunity cost.

Smith should specialize in the production of smart phone because of the lower opportunity cost.