Answer
a) Opportunity cost of making pizza: Pat--.5 gallons of root beer, Kris--.667 (2/3) gallons of root beer
Pat has the absolute advantage in making pizza, and Pat also has the comparative advantage in making pizza.
b) Pat would trade away pizza for root beer.
c) Highest price is 2/3 of a gallon of root beer per pizza. Lowest price is 1/2 of a gallon of root beer per pizza.
Work Step by Step
a)
Pat needs 4 hours to brew a gallon and 2 hours to make a pizza. Half of a gallon can be made in the same time it takes to make a pizza.
Kris needs 6 hours to brew a gallon and 4 hours to make a pizza. 2/3 of a gallon can be made in the same time it takes to make a pizza.
b)
Pat can make half a gallon of root beer in the time it takes to make a pizza. Kris can make 2/3 of a gallon of root beer in the time it takes to make a pizza.
Pat has the comparative advantage (a lower opportunity cost), so Pat would trade pizza for root beer.
c) Pat's opportunity cost per pizza is 1/2 of a gallon of root beer. Kris's opportunity cost per pizza is 2/3 of a gallon of root beer. For the trade to make both Kris and Pat better off, the trade (per pizza) would have to be between both opportunity costs.
