An Automobile Company Has Two Factories, One in Vietnam and One

question 44

Multiple Choice

An automobile company has two factories, one in Vietnam and one in Australia, each with the same number of workers. The Vietnamese factory can produce either 150 engines or 100 transmissions per day. The Australian factory can produce either 100 engines or 75 transmission per day.

• A)The Vietnamese factory has an absolute advantage producing both engines and transmissions.
• B)The Australian factory has an absolute advantage in the production of transmissions.
• C)The Vietnamese factory has a comparative advantage in the production of transmissions.
• D)Which factory has an advantage is irrelevant since the theory of comparative advantage only applies to countries, not companies.

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Definitions:

Memorandum Entry

An accounting entry that is made in the records but does not affect the financial statements.

Tangible

Physical and material assets that can be seen and touched, such as machinery, buildings, and equipment.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.

Equipment Held

Assets in the form of machinery or other equipment that a company owns and uses in its operations.