Question

Calvin and Hobbes run a company that sells only two items: T-shirts and car decals. Calvin is fast at making decals and very slow at making T-shirts, whereas Hobbes is fast at making T-shirts and very slow at making 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:

A

B

C

Explanation:

A person has comparative advantage in production if it produces at a lower opportunity cost when compared to other people.

Opportunity cost of the next best option forgone when one alternative is chosen over other alternatives

A person should specialise in the production of goods for which they have a comparative advantage. this maximises total output

Calvin has a comparative advantage in making decals because he is faster compared to Hobbes. He should specialise in making decals.

Hobbes has a comparative advantage in making shirts because he is faster compared to Calvin. He should specialise in making shirts