Two friends,Monica and Chandler,enjoy baking bread and making apple pies.Monica takes two hours to bake 1 loaf of bread and one hour to make 1 pie.Chandler takes four hours to bake 1 loaf of bread and four hours to make 1 pie.
-If Monica and Chandler decide to specialize in order to maximize their combined output,who should produce what?
A) Chandler should specialize in making pies because he has an absolute advantage.
B) Monica should specialize in making pies and Chandler should specialize in making bread.
C) Chandler should specialize in making pies and Monica should specialize in making bread.
D) Monica should specialize in making bread and pies because she has a comparative advantage in both.
E) Monica should not specialize because she is better at producing both.

Question

Quizplus · Accepted Answer

Monica has a comparative advantage in making pies because she can make them in half the time it takes Chandler. Chandler has a comparative advantage in making bread because he can make it in half the time it takes Monica. Therefore, Monica should specialize in making pies and Chandler should specialize in making bread.

Two Friends,Monica and Chandler,enjoy Baking Bread and Making Apple Pies