Question

Amy and Deborah 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. Amy takes 3 hours to brew a gallon of root beer and 2 hours to make a pizza. Deborah takes 7 hours to brew a gallon of root beer and 5 hours to make a pizza.

Amy's opportunity cost of brewing a gallon of root beer is ------ , and Deborah's opportunity cost of brewing a gallon of root beer is ------ .

------ has an absolute advantage in brewing root beer, and ------ has a comparative advantage in brewing root beer.

If Amy and Deborah trade foods with each other, ------ will trade away pizza in exchange for root beer. The price of pizza can be expressed in terms of gallons of root beer. The highest price at which pizza can be traded that would make both roommates better off is ------ of root beer, and the lowest price that makes both roommates better off is ------ of root beer per pizza.

Answer 1

Amy's opportunity cost of brewing a gallon of root beer is 3/2 = 1.5 pizza

Deborah's opportunity cost of brewing a gallon of root beer is 7/5 = 1.4 pizza

Step-by-step explanation:

Amy takes 3 hours to brew a gallon of root beer and 2 hours to make a pizza

Amy's opportunity cost of brewing a gallon of root beer is 3/2 = 1.5 pizza

Deborah takes 7 hours to brew a gallon of root beer and 5 hours to make a pizza

Deborah's opportunity cost of brewing a gallon of root beer is 7/5 = 1.4 pizza

Deborah has an absolute advantage in brewing root beer, and Deborah has a comparative advantage in brewing root beer.

If Amy and Deborah trade foods with each other, Amy will trade away pizza in exchange for root beer.

The highest price at which pizza can be traded that would make both roommates better off is 0.71 of root beer, and the lowest price that makes both roommates better off is 0.67 of root beer per pizza.