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:

Net Operating Income

The profit a company makes after deducting operating expenses from gross profit, not including income and expenses from investments and interest.

Variable Costing

An accounting method that only considers variable costs in determining the cost of products.

Variable Costing

An accounting method that only includes variable production costs (materials, labor, and overhead) in product costs, excluding fixed costs.

Unit Product Cost

The total cost to produce one unit of product, including direct materials, direct labor, and a portion of all overhead costs.