Suppose That, Given the Same Number of Workers, the United

question 152

Multiple Choice

Suppose that, given the same number of workers, the United States can produce twice as many televisions or 20 times as many potatoes as Chile. Which of the following statements is true?

• A) Chile should make televisions and trade them to the United States in exchange for potatoes, because the United States has an absolute advantage in the production of potatoes.
• B) Chile should make potatoes and trade them to the United States in exchange for televisions, because the United States has an absolute advantage in the production of potatoes.
• C) The United States can benefit from trading with Chile, but Chile will receive no benefit.
• D) The United States has an absolute advantage at producing both televisions and potatoes.

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Definitions:

Indirect Bankruptcy Costs

Costs associated with bankruptcy that do not involve direct cash payments, such as damage to a company's reputation or loss of customers.

Optimal Capital Structure

The most favorable mix of debt and equity financing that minimizes the cost of capital and maximizes the value of the firm.