(-? C OG Secure! https://ng.cengage.c ?Apps ,Blackboard Learn Elte Pre num Finan
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(-? C OG Secure! https://ng.cengage.c ?Apps ,Blackboard Learn Elte Pre num Finan 7&snapshotld; 816355&id-3139064608; -Wells Fargo Sign On html?elSBN-978133709657 City of Holywood Free Plagiarism Det Ochrome A ept Co. PRM RESID MORT ? spac MINDTAP a Search this course Problems & Applications (Ch 03) c Back to Assignment Attempts: Average: 14 3. Problems and Applications Q3 Rins and Yvette are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Rina takes 5 hours to brew a gallon of root beer and 3 hours to make a pizza. Yvette takes 8 root beer and 4 hours to make a pizza. Y of root beer, and Yvette's opportunity cost of making a plizza is Rina's opportunity cost of making a pizza s root beer has an absolute advantage in making pizza, andh as a comparative advantage in making pizza. will trade away pizza in exchange for root beer. If Rina and Ywette trade foods with each other The price of pizza can be expressed in terms of gallions of root beer. better off is The highest price at which pizza can be traded that would make both roommates of root beer per pizza. Y of root beer, and the lowest price that makes both roommates better off is Grade It Now Save & Continue Coninue without saving MacBook Pro
Explanation / Answer
(1) Rina's opportunity cost of pizza is 0.60 (= 3/5) root beer and Yvette's opportunity cost of pizza is 0.50 (= 4/8) root beer.
(2) Rina has absolute advantage in pizza [since Rina can produce more pizza in 1 hour than Yvette can: (1/3) > (1/4)] and Yvette has comparative advantage in pizza [Since Yvette can produce pizza at a lower opportunity cost than Rina can: 0.5 < 0.6].
(3) Yvette will trade pizza for root beer (Since Yvette will specialize in pizza and Rina will specialize in root beer).
(4) Highest price of pizza is 0.60 root beer and lowest price of pizza is 0.50 root beer (Since trade is mutually beneficial when terms of trade lies in between opportunity costs of Rina and Yvette).
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