Question

Megan and Susan 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. Megan takes 5 hours to brew a gallon of root beer and 3 hours to make a pizza. Susan takes 8 hours to brew a gallon of root beer and 4 hours to make a pizza.

Megan's opportunity cost of making a pizza is ______________ of root beer, and Susan's opportunity cost of making a pizza is ______________ of root beer. __________has an absolute advantage in making pizza, and ___________ has a comparative advantage in making pizza. If Megan and Susan 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

Answer and Explanation:

The cost of pizza production for Megan is 3 ÷ 5 root beer gallons.

And, Susan's pizza production potential cost is 1 ÷ 2 root beer gallons

Megan also gained an edge in pizza making as she only takes three hours, whereas Susan takes four hours on the other side.

And, susan's opportunity cost is lower than megan, which means that susan has the comparative advantage.

3 ÷ 5 root beer gallon may be better off.

And the cheaper price of 1 ÷ 2gallons of root beer could be better.