John Can Clean the House in Three Hours and Do

question 109

Multiple Choice

John can clean the house in three hours and do the laundry in four. Jane can clean the house in two hours or do the laundry in two. Can they benefit by specialization and trade?

• A) Neither can benefit because John has nothing to offer.
• B) John could benefit from an exchange, but Jane cannot because she is better at both.
• C) Both can benefit because John has a comparative advantage in laundry.
• D) Both can benefit because John has a comparative advantage in cleaning.

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance premiums, remaining constant regardless of variations in business activity.

Variable Costs

Expenses that change in proportion to the activity of a business, such as materials or labor directly tied to production volume.

Break-even Sales

The point at which total sales equal total expenses, resulting in no profit or loss.

Fixed Costs

Expenses that do not change with the level of goods or services produced by a business, such as rent, salaries, and insurance.