Figure 3-10
Alice and Betty's Production Possibilities in one 8-hour day.

-Refer to Figure 3-10.Which of the following statements is correct regarding comparative advantage?
A) Alice has a comparative advantage in the production of both lemonade and pizzas.
B) Betty has a comparative advantage in the production of both lemonade and pizzas.
C) Alice has a comparative advantage in the production of pizzas while Betty has a comparative advantage in the production of lemonade.
D) Alice has a comparative advantage in the production of lemonade while Betty has a comparative advantage in the production of pizzas.

Question

Figure 3-10
Alice and Betty's Production Possibilities in one 8-hour day.
 
-Refer to Figure 3-10.Which of the following statements is correct regarding comparative advantage?
A) Alice has a comparative advantage in the production of both lemonade and pizzas. 
B) Betty has a comparative advantage in the production of both lemonade and pizzas. 
C) Alice has a comparative advantage in the production of pizzas while Betty has a comparative advantage in the production of lemonade. 
D) Alice has a comparative advantage in the production of lemonade while Betty has a comparative advantage in the production of pizzas.

Quizplus · Accepted Answer

According to the production possibilities in the figure, Alice can produce 12 cups of lemonade or 6 pizzas in one 8-hour day while Betty can produce 20 cups of lemonade or 10 pizzas in one 8-hour day. Therefore, Alice has a lower opportunity cost of producing lemonade (2 pizzas foregone) than Betty (3 pizzas foregone), indicating that Alice has a comparative advantage in the production of lemonade. Similarly, Betty has a lower opportunity cost of producing pizzas (2 cups of lemonade foregone) than Alice (4 cups of lemonade foregone), indicating that Betty has a comparative advantage in the production of pizzas. Thus, option D is correct.

Figure 3-10 Alice and Betty's Production Possibilities in One 8-Hour Day