If Shawn Can Produce Donuts at a Lower Opportunity Cost

question 136

Multiple Choice

If Shawn can produce donuts at a lower opportunity cost than Sue, then

• A) Shawn has a comparative advantage in the production of donuts.
• B) Sue has a comparative advantage in the production of donuts.
• C) Shawn should not produce donuts.
• D) Shawn is capable of producing more donuts than Sue in a given amount of time.

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Definitions:

Game Theory

The study of how people behave in strategic situations in which individuals must take into account not only their own possible actions but also the possible reactions of others. Originally developed to analyze the best ways to play games like poker and chess.

Strategic Behavior

Self-interested economic actions that take into account the expected reactions of others.

Dominant Strategy

A strategy that always results in the highest payoff for a player, regardless of the opponents' actions.

Nash Equilibrium

The situation that occurs in some simultaneous games wherein every player is playing his or her dominant strategy at the same time and thus no player has any reason to change behavior.