Question

Town A, in one hour, can produce either 5 hotdog buns, or 10 sausages.

Town B, in one hour, can produce either 10 hotdog buns, or 6 sausages.

There are 60 people in each town.

If Town A and Town B applies the theory of comparative advantage, or specialization of production, how many total hours (ADD hours required to produce hotdog buns AND hours required to produce sausages) does it take to produce hotdog buns for 120 people and sausages for 120 people?

Group of answer choices

15 hours

24 hours

12 hours

27 hours

Answer 1

24 hours

Opportunity cost of producing one hotdog is 2 sausages in town A and it is 0.6 sausages in town B. this shows that there is comparative advantage in terms of lower opportunity cost with town B for producing hotdogs and town will have comparative advantage in production of sausage. To serve 120 people, 120 sausages and 120 hotdogs are required to be produced. Town A can produce 10 sausages in 1 hour which means it requires 120/10 or 12 hours. Similarly town B can produce 10 hotdogs in one hour which implies that it also needs 12 hours to supply 120 hot dogs.