Assume That by Devoting All of Its Resources to the Production

question 131

Multiple Choice

Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for
Nation Beta are 60X and 40Y. We can conclude that

• A) the terms of trade will be 3X equals 1Y.
• B) Alpha should specialize in Y and Beta in X.
• C) Alpha should specialize in X and Beta in Y.
• D) there is no basis for mutually beneficial specialization and trade.

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Definitions:

Predetermined Overhead

An estimated rate used to allocate overhead costs to products or services based on expected activities and costs.

Direct Materials

Materials that can be directly linked to the production process and form a fundamental component of the final product.

Direct Labor-Hours

The cumulative hours that employees actively participating in manufacturing processes have worked.

Predetermined Overhead

An estimated rate used in manufacturing to allocate overhead costs to products or services based on a certain activity measure.