If Individuals a and B Can Both Produce Only Goods

question 93

Multiple Choice

If individuals A and B can both produce only goods X and Y, and A does not have a comparative advantage in the production of either X or Y, then we know

• A)B has an absolute advantage in the production of X and Y.
• B)A and B have the same opportunity costs for X and for Y.
• C)B has a comparative advantage in the production of both X and Y.
• D)the gains from trade will be large but only in one direction.
• E)A must have lower opportunity costs of production for both goods.

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Definitions:

Transfer Price

The price at which goods and services are sold between divisions within the same company.

Excess Capacity

The unused production capability of a company, indicating that the company can produce more than is currently being demanded.

Expense Allocation

The process of identifying, aggregating, and assigning costs to cost objects like departments, products, or projects.

Operating Departments

Operating departments are the functional areas within an organization directly involved in producing the company's main goods or services, such as production or sales departments.