An automobile company has two factories, one in Vietnam and one in Australia, each with the same number of workers. The Vietnamese factory can produce either 150 engines or 100 transmissions per day. The Australian factory can produce either 100 engines or 75 transmissions per day.

Question

Quizplus · Accepted Answer

The Vietnamese factory's opportunity cost of producing 1 transmission is 1.5 engines (150/100), while the Australian factory's opportunity cost is 1.33 engines (100/75). Therefore, the Australian factory has a comparative advantage in producing transmissions.

An Automobile Company Has Two Factories, One in Vietnam and One