There Are Two Goods, X and Y

question 9

Multiple Choice

There are two goods, X and Y. If the opportunity cost of producing good X is lower for Pam than for Gino, then

• A)Pam has an absolute advantage in the production of X.
• B)Gino has an absolute advantage in the production of Y.
• C)Pam has a comparative advantage in the production of X.
• D)Gino has a comparative advantage in the production of Y.
• E)C and D

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Definitions:

Fixed Expenses

Costs that do not fluctuate with the level of production or sales, such as rent, insurance, and property taxes.

Contribution Margin Ratio

A ratio that represents the percentage of sales revenue that exceeds variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Break-even Point

The sales level at which total revenues equal total costs, resulting in no profit or loss.

Margin of Safety

This metric calculates how much sales can decline before a business reaches its breakeven point.