Using the Figure Above,suppose with No Trade Liz and Joe

question 101

Multiple Choice

Using the figure above,suppose with no trade Liz and Joe each produce at point A on their respective PPFs.Then,Joe suggests that they specialize and trade.He would produces only salads and Liz would produce only smoothies.Then,Joe says,he would buy 16 smoothies from Liz at a price of 1.5 salads per smoothie.Liz should

• A) accept Joe's offer since she will gain 4 smoothies and 4 salads.
• B) accept Joe's offer as she will be as well off as with no trade.
• C) not accept Joe's offer as the price he offers is too low for her to gain from trade.
• D) not accept Joe's offer since she would lose 2 smoothies and 2 salads.
• E) accept Joe's offer since she will gain 4 salads.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (both fixed and variable) in the cost of a product.

Operating Income

Earnings from a company's core business operations, excluding expenses and revenues from investments and other non-operational activities.

Variable Costing

An accounting method that only allocates variable production costs to products, excluding fixed costs.

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.