Kathy and Amy paint pictures and do caricatures to sell to tourists. In one day, Kathy can either paint two pictures or do four caricatures. In one day, Amy can either paint three pictures or do three caricatures
For both Kathy and Amy, what is the opportunity cost of painting one picture? Who has the comparative advantage in painting pictures and who has the comparative advantage in doing caricatures? How might they be able to increase their total output?
Kathy's opportunity cost of painting a picture is two caricatures. Amy's opportunity cost of painting a picture is one caricature. Amy has a comparative advantage in painting and Kathy has a comparative advantage in doing caricatures. They could increase output by specializing in producing the goods for which they have a comparative advantage.
You might also like to view...
Which of the following statements is true of the number of entrepreneurs in an economy?
A) The number of entrepreneurs is likely to be higher in an economy with inclusive institutions than in an economy with extractive institutions. B) The number of entrepreneurs is likely to be higher in a command economy than in a market economy. C) The number of entrepreneurs is likely to be the same in an economy with inclusive institutions and an economy with extractive institutions. D) The number of entrepreneurs is likely to be the same in a command economy and a market economy.
Two software firms have developed an identical new software application. They are debating whether to give the new app away free and then sell add-ons or sell the application at $30 a copy
The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game? A) Both Firm 1 and 2 will sell the software application at $30 a copy. B) Both Firm 1 and 2 will give the software application away free. C) Firm 1 will give the application away free and Firm 2 will sell it at $30. D) There is no Nash equilibrium to this game.