Amy can produce either 5,000 pounds of cheese or 20 cars per year. Mike can produce either 5,000 pounds of cheese or 10 cars per year. By the principle of comparative advantage, Amy should specialize in producing

Question

Quizplus · Accepted Answer

Amy's opportunity cost of producing cars is lower than is Mike's (250 < 500), while Mike's opportunity cost of produce cheese is lower than is Amy's (1/500 < 1/250). So Amy has a comparative advantage in cars, and Mike has a comparative advantage in cheese. This implies that Amy should specialize in producing cars and Mike should specialize in producing cheese.

Amy Can Produce Either 5,000 Pounds of Cheese or 20