Refer to Figure 35

question 109

Multiple Choice

Refer to Figure 35.3 for the production possibilities curves for the United States and Mexico. These two curves indicate that

• A) The United States should specialize in the production of both goods because it has an absolute advantage in the production of both.
• B) The United States should specialize in the production of machinery.
• C) Mexico should specialize in the production of tomatoes.
• D) Mexico should specialize in the production of machinery.

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Definitions:

Direct Materials

Raw materials that can be directly linked to the production of a specific product.

Fixed Overhead

Regular, ongoing expenses that are not affected by changes in production level or output, such as rent and insurance.

Variable Overhead

Costs that change in proportion to the level of production activity or volume, such as power for manufacturing equipment.

Direct Labor

The labor costs directly associated with the production of goods or services, which includes wages for workers who physically contribute to the finished product.