-The figure above shows Prakash's and Gail's production possibilities frontiers for writing books and magazine articles.
a) What is Prakash's opportunity cost of a book? What is Gail's opportunity cost? Who has the comparative advantage in writing books?
b) Who has the comparative advantage in writing magazine articles?
c) According to their comparative advantages, who should write books and who should write magazine articles?
Definitions:
Total Cost
The combined financial outlay for producing goods or services, covering both unchanging and varying expenses.
Economies of Scale
Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.
Inelastic Resource Supply
A condition where the supply of a resource does not significantly change in response to price changes.
Total Variable Costs
The sum of all costs that vary with the level of output or production, such as materials and labor, as opposed to fixed costs which remain constant regardless of the level of production.
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