ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Transcribed Image Text:Ana and Dina 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. Ana takes 3 hours to brew a gallon of root beer and 2 hours to make a pizza. Dina takes 7 hours to brew a gallon of root beer
and 5 hours to make a pizza.
Ana's opportunity cost of making a pizza is
root beer.
of root beer, and Dina's opportunity cost of making a pizza is
of
has an absolute advantage in making pizza, and
has a comparative advantage in making pizza.
If Ana and Dina trade foods with each other,
will trade pizza in exchange for root beer.
The price of pizza can be expressed in terms of gallons of root beer. The highest price at which pizza can be traded that would make both roommates
better off is
of root beer, and the lowest price that makes both roommates better off is
of root beer per pizza.
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