Question

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?
A. Cathy should specialize in both pies and cakes.
B. There are no gains from specialization and trade.
C. Lewis should specialize in pies, and Cathy should specialize in cakes.
D. Cathy should specialize in pies, and Lewis should specialize in cakes

Answer 1

Answer:

D. Cathy should specialize in pies, and Lewis should specialize in cakes

Explanation:

For determining which statement is correct first we need to find out the

Cathy Opportunity cost for making a pie is

= 1 ÷ 1.5

= 0.66 cake

Now for making a cake is  

= 1.5 ÷ 1

= 1.5 pies

Lewis opportunity cost for making a pie is  

= 1.5 ÷ 2

= 0.75 cake

And for making a cake is  

= 2 ÷ 1.5

= 1.33 pies

Therefore the option D is correct