Question

The restaurant Bread and Chocolate is jointly owned by Ben and Jerry. Each day they must decide how much bread and chocolate to produce. Below is a table that describes their ability to produce each of the goods. Additionally, each workday is 5 hours long.

	Minutes to produce one loaf of bread	Minutes to produce one chocolate bar
Ben	6	4
Jerry	2	1

a. calculate all opportunity costs

b. If they specialize in producing the good in which they have a comparative advantage, who would

produce what? and why? show all work.

c. Draw Ben and Jerry’s individual daily PPF (one graph for each one).

d. If a loaf of bread is $2 and a bar of chocolate is $3, how much money does the restaurant make in a day if the owners specialize completely? Assume they sell all their production.

Answer 1

Unit Labor requirement table

	Bread ?	chocolate ?
Ben	6	4
Jerry	2	1

A) opportunity cost table

	Opportunity Cost of bread (in terms of chocolate)	OC of chocolate in terms of bread
Ben	6/4= 1.5	2/3
Jerry	2	.5

B)

So ben has lower opportunity cost of bread,

So Ben has Comparative ADVANTAGE , & so specialize in bread & produce only bread

Jerry has Comparative ADVANTAGE in chocolate

.

C) PPF : linear

Let Bread on X axis , Chocolate on Y axis

D) PB = 2, PC = 3,

In 5 hours, Ben produces = (5*60)/6= 50 bread

Jerry produces = (5*60)/1 = 300 chocolate

So ben earns = 50*2= 100

Jerry produce = 3*300= 900