Use the following scenario to answer the questions that follow.
Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year.
-By the principle of comparative advantage,Amy should specialize in producing:

Question

Quizplus · Accepted Answer

According to the principle of comparative advantage, Amy should specialize in producing the good in which she has a lower opportunity cost. If Amy produces 5,000 pounds of cheese, she foregoes producing 20 houses. Therefore, the opportunity cost of producing 1 pound of cheese is 1/250 houses. On the other hand, if Amy produces 20 houses, she foregoes producing 5,000 pounds of cheese. Therefore, the opportunity cost of producing 1 house is 250 pounds of cheese. Comparing the opportunity costs, Amy has a lower opportunity cost in producing houses, so she should specialize in producing houses.

Use the Following Scenario to Answer the Questions That Follow