Michael Can Produce the Following Combinations of X and Y

question 15

Multiple Choice

Michael can produce the following combinations of X and Y: 10X and 10Y,5X and 15Y,and 0X and 20Y.Vernon can produce the following combinations of X and Y: 100X and 20Y,50X and 30Y,or 0X and 40Y.It follows that

• A) Michael has the comparative advantage in producing X and Vernon has the comparative advantage in producing Y.
• B) Michael has the comparative advantage in producing Y and Vernon has the comparative advantage in producing X.
• C) Neither Michael nor Vernon has a comparative advantage in producing X.
• D) Neither Michael nor Vernon has a comparative advantage in producing Y.
• E) There is not enough information to answer the question.

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Definitions:

Risky Asset

An investment that holds a certain degree of risk, possibly leading to loss, such as stocks or commodities.

Reward-To-Variability Ratio

A ratio that compares the expected return of an investment to the risk (variability) of that investment, often used to gauge the performance of investment portfolios.

Capital Market Line

A theoretical line used in the capital asset pricing model to illustrate the risk versus return trade-off for efficient portfolios.

Risk-Free Rate

The theoretical rate of return on an investment with no risk of financial loss, typically represented by government bonds.