Suppose That a Worker in Boatland Can Produce Either 5

question 179

Multiple Choice

Suppose that a worker in Boatland can produce either 5 units of wheat or 20 units of fish per year, and a worker in Farmland can produce either 20 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland. As a result, Boatland produces and consumes 25 units of wheat and 100 units of fish per year while Farmland produces and consumes 100 units of wheat and 25 units of fish per year. If the political pressure was overcome and trade was to occur, each country would completely specialize in the product for which it has a comparative advantage. If trade were to occur, by how much would the combined output of the two countries increase?

• A) 25 wheat and 25 fish
• B) 50 wheat and 50 fish
• C) 75 wheat and 75 fish
• D) 100 wheat and 100 fish

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Definitions:

Direct Labor Time Variance

The difference between the expected (or standard) time to produce goods and the actual time taken, often used in cost control.

Overhead

The ongoing administrative and general expenses of a business that are not directly attributable to specific products or services.

Standard Labor Hours

The estimated amount of time that should be required to produce a unit of product or to complete a process, task, or project.

Direct Labor Rate Variance

A measure of the difference between the actual cost of direct labor and the expected (or standard) cost.