Question

Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a gallon of root beer and 2 hours to make a pizza. Kris takes 6 hours to brew a gallon of root beer and 4 hours to make a pizza.a. What is each roommate’s opportunity cost of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza?b. If Pat and Kris trade foods with each other, who will trade away pizza in exchange for root beer?c. The price of pizza can be expressed in terms of gallons of root beer. What is the highest price at which pizza can be traded that would make both roommates better off? What is the lowest price?Explain.

Answer 1

1.- Pat´s cost of making a pizza is 1/2 gallon of root beer, since she could breu 1/2 gallon in 2 hours, the time that take her to make a pizza. Pat has an advantage in making pizza because she can make one in 2 houres, while kris takes 4 hours.

Kit´s opportunity cost of making pizza is 2/3 gallos of root beer, she could brew 2/3 of a gallon in the time she takes to make a pizza that is 4 hours. Pat´s opportunity cost is less than Kris´s, pat has an advantag in making pizza.

2.- Since pat has a comparative advantage in making pizza, she will make it and exchange it for root beer that kris makes.

3.- the highest price of pizza that will make both roommates better off is 2/3 of a gallon of root beer. If the price were higher than that, then Kris would prefer making her own pizza rather than trading for pizza that pat makes.

The lowest price of pizza in terms of root beer that will make both roommates better is 1/2 gallon of root beer. If the price were lower than that, Pat would prefer making her own root beer.