Consider the Following Scenario

question 63

Multiple Choice

Consider the following scenario.Two friends,Rachel and Joey,enjoy baking bread and making apple pies.Rachel takes two hours to bake one loaf of bread and one hour to make one pie.Joey takes four hours to bake one loaf of bread and four hours to make one pie.If Rachel and Joey decide to specialize in order to maximize their combined output,who should produce what?

• A) Joey should specialize in making pies because he has an absolute advantage.
• B) Rachel should specialize in making pies and Joey should specialize in making bread.
• C) Joey should specialize in making pies and Rachel should specialize in making bread.
• D) Rachel should specialize in making bread and pies because she has a comparative advantage in both.
• E) Rachel should not specialize because she is better at producing both.

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Definitions:

Dollar Value

The worth of a good or service expressed in terms of the amount of money that it can be bought or sold for in the market.

Form Utility

The value added by the process of transforming raw materials into a finished product that is more useful and valuable to consumers.

Manufacturing

The process of converting raw materials or components into finished goods through the use of labor, machinery, and equipment.