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 has a comparative advantage in the production of engines as it can produce 1.5 engines for every 1 transmission, while the Australian factory can only produce 1.33 engines for every 1 transmission. This means that the Vietnamese factory can produce engines at a lower opportunity cost compared to the Australian factory.

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