Tom and Jerry Have One Day to Work, but Two

question 112

Multiple Choice

Tom and Jerry have one day to work, but two tasks to focus on: building chairs and tables. If Tom spends all day building chairs, he will make 16 chairs. If he instead devotes his day to building tables, Tom will make 4 tables. If Jerry spends his day building chairs, he will make 14 chairs; if he spends the day building tables, he will make 7 tables. After looking at the production possibilities for both Tom and Jerry, what can we conclude?

• A) Tom has a comparative advantage at producing chairs.
• B) Jerry has a comparative advantage at producing chairs.
• C) Tom has a comparative advantage at producing tables.
• D) Neither Tom nor Jerry has a comparative advantage at producing either good.

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Definitions:

Holding-Period Return

Holding-Period Return is the total return received from holding an asset or portfolio of assets over a period of time, factoring in both income and capital gains or losses.

Capital Gain Yield

The change in the price of a security or investment over time, not including dividends or interest earnings, usually expressed as a percentage.

Risk Premium

The additional return expected by an investor for holding a risky asset over a risk-free asset, compensating for the higher risk.