Answered: Smoothies Cell phones Martha 15 per day…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 2PB: Mortech makes digital cameras for drones. Their basic digital camera uses $80 in variable costs and...

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Smoothies Cell phones Martha 15 per day 3 per day Kelly 10 per day 1 per day This table shows the how many smoothies or cell phones Martha and Kelly can each produce if they put all of their respective resources into producing that good alone. Use this information to answer the following questions: Who has an absolute advantage in the production of smoothies? Who has an absolute advantage in the production of cell phones? What is Martha's opportunity cost of producing one smoothie (in terms of cell phones)? What is Kelly’s opportunity cost of producing one smoothie (in terms of cell phones)? What is Martha's opportunity cost of producing one cell phone (in terms of smoothies)? What is Kelly's opportunity cost of producing one cell phone (in terms of smoothies)? If each person specializes in the production of the product in which she has a comparative advantage, who should produce smoothies? If each person specializes in the production of the product in which she has a comparative advantage, who should produce cell phones? Assume there are only two goods in the world: pizza and electric fans. Draw a production possibility frontier (PPF) illustrating the trade-off between the two (specific numbers are not needed – we are only looking for the basic shape of the PPF). On the same graph, draw new frontiers showing 1) what happens if a major plague reduced worldwide population significantly, and 2) if a machine is invented which doubles the number of fans that can be made in a day (but is irrelevant in the production of pizza). You and your neighbor are the only people in a world that produces only berries and squash. You do not engage in trade with each other. On your own, you can each produce the following per day: You Neighbor Berries Squash Berries Squash Only gather berries 24 pounds 0 pounds 8 pounds 0 pounds Only gather squash 0 pounds 12 pounds 0 pounds 8 pounds Right now you each split your time between gathering the two products. You currently gather and consume 16 pounds of berries and 4 pounds of squash, while your neighbor is gathering and consuming 6 pounds of berries and 2 pounds of squash. Show (both graphically and numerically) how specialization and then trade with each other can make both of you better off. Who specializes in the production of each product? After specialization, what is an example of a trade that would be beneficial for both of you to make?

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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