# ECON 200 Homework 4_answers - Due Wednesday, 1/27/10 ECON...

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ECON 200 Homework 4 Answer Key Due Wednesday, 1/27/10 1. Jane and Beth are planning on opening a bakery. In a typical day, Jane can make 4 pies or 2 cakes. Beth can make 3 pies or 6 cakes in a day. a). If they don't coordinate their baking (i.e. each person bakes independently, without planning with the other person) and each one of them makes 2 pies, how many cakes will they each be able to make? Draw each of their production possibility frontiers separately. If Jane makes 2 pies, she can also make 1 cake. If Beth makes 2 pies, then she can make 2 cakes. b). What is each girl's marginal cost of making pies in terms of cakes? What are their marginal costs of making cakes in terms of pies? Who has the comparative advantage in cake and who has the comparative advantage in pies? Jane's MC of 1 pie is 1/2 cake Beth's MC of 1 pie is 2 cakes Jane's MC of 1 cake is 2 pies Beth's MC of 1 cake is 1/2 pie Jane has the comparative cost in making cakes since she only foregoes 1/2 a cake to make a pie, whereas Beth has to forego 2 cakes. Conversely, Beth has the comparative advantage in pies since her

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## This note was uploaded on 02/06/2010 for the course ECONOMICS 200 taught by Professor Stiban,f during the Winter '10 term at University of Warsaw.

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ECON 200 Homework 4_answers - Due Wednesday, 1/27/10 ECON...

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