In: Economics
In one hour Sonny can make 5 quarts of sauce or 20 meatballs. In
one hour, Fredo can make 2 quarts of sauce or 12 meatballs. Suppose
each person wants to have one quart of sauce whether he's cooking
on his own or trading. If Sonny and Fredo specialize and trade
according to comparative advantage, they will be able to produce
which of the following combinations in total?
A) Two quarts of sauce and 20 meatballs.
B) Two quarts of sauce and 27 meatballs.
C) Five quarts of sauce and 12 meatballs.
D) Two quarts of sauce and 24 meatballs.
Correct answer is D but i need an explanation.
Opportunity cost of quarts for Sonny=20/5=4 meatballs per quarts
Opportunity cost of quarts for Fredo=12/2=6 meatballs per quarts
Opportunity cost of meatballs for Sonny=5/20=0.25 quarts per meatballs
Opportunity cost of meatballs for Fredo=2/12=0.17 quarts per meatballs
Sonny will produce quarts because they have low Opportunity cost while Fredo will produce meatballs because they have low opportunity
However, as they need only two quarts, so Sonny will produce only two quarts and remaining time he will use for meatballs
Sonny will produce one quarts=60/5=12 minutes
so for two quarts, Sonny will take=12*2=24 minutes
there will be remaining 36 minutes for Sonny to produce meatball
Sonny will produce meatballs in 36 minutes=36/(60/20)=12 meatballs
total meatballs to be produced=Sonny will produce meatballs in 36 minutes+Fredo will produce meatballs
=12+12
=24 meatballs
so answer will be
D) Two quarts of sauce and 24 meatballs.
the above is answer..