Two Friends,Monica and Chandler,enjoy Baking Bread and Making Apple Pies

question 151

Multiple Choice

Two friends,Monica and Chandler,enjoy baking bread and making apple pies.Monica takes two hours to bake 1 loaf of bread and one hour to make 1 pie.Chandler takes four hours to bake 1 loaf of bread and four hours to make 1 pie.
-If Monica and Chandler decide to specialize in order to maximize their combined output,who should produce what?

• A) Chandler should specialize in making pies because he has an absolute advantage.
• B) Monica should specialize in making pies and Chandler should specialize in making bread.
• C) Chandler should specialize in making pies and Monica should specialize in making bread.
• D) Monica should specialize in making bread and pies because she has a comparative advantage in both.
• E) Monica should not specialize because she is better at producing both.

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Definitions:

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the company's strategic objectives, focusing on projects that will generate value over time.

Incremental Sales

The increase in sales revenue attributed to a specific marketing effort or event.

Operating Expenses

Costs incurred in the day-to-day operations of a business, excluding the cost of goods sold, such as rent, salaries, and utilities.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the firm's financial strategies and goals.