Suppose That Only Two Goods Are Produced in an Economy

question 62

Multiple Choice

Suppose that only two goods are produced in an economy.If a country possesses the comparative advantage in the production of one good then it:

• A) must also possess the comparative advantage in the production of the other good.
• B) must also possess the absolute advantage in the production of that good.
• C) cannot also possess the comparative advantage in the production of the other good.
• D) cannot also possess the absolute advantage in the production of that good.

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Definitions:

Absorption Costing

Accounting method that includes all manufacturing costs (direct costs, variable and fixed overhead) in the cost of a product.

Variable Costing

A method of costing that includes only variable production costs in product costs, treating fixed manufacturing overhead as a period cost to be charged against revenue in the period incurred.

Absorption Costing

A strategy in accounting that involves incorporating costs related to manufacturing, including direct materials, direct labor, and variable and fixed overheads, into the price point of a product.

Production Cost

The total expense incurred in manufacturing a product, including materials, labor, and overhead.