Suppose that Penn's opportunity cost of producing an extra Pepsi is 3 cheeseburgers while Teller's opportunity cost is 0.14 cheeseburgers.One could predict that
A) Penn must have an absolute advantage in producing cheeseburgers.
B) Teller must have an absolute advantage in producing Pepsis.
C) they have little to gain from specialization and coordinating production.
D) Teller has a comparative advantage in cheeseburger production.
E) they have potentially much to gain from specialization and coordinating production.

Question

Quizplus · Accepted Answer

The concept of comparative advantage suggests that individuals or countries should specialize in producing goods for which they have a lower opportunity cost. In this case, Penn's opportunity cost of producing an extra Pepsi is higher than Teller's, indicating that Teller has a comparative advantage in producing Pepsis. This means that if they specialize and coordinate their production, Teller should focus on producing Pepsis while Penn should focus on producing cheeseburgers. This way, they can both benefit from trade and potentially increase their overall production of both goods. Therefore, option E, which suggests they have potentially much to gain from specialization and coordinating production, is the best choice.

Suppose That Penn's Opportunity Cost of Producing an Extra Pepsi