Tom and Jerry Have One Day to Work, but Two

question 51

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. Based on their production possibilities frontiers, Tom and Jerry:

• A) can both benefit from trade because absolute advantage exists.
• B) can both benefit from trade because comparative advantage exists.
• C) cannot benefit from trade because Tom has an absolute advantage at producing both goods.
• D) will decide not to trade because no comparative advantage exists.

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