E202Solutions1.2

E202Solutions1.2 - Answer: At University A, students will...

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Answer : At University A, students will keep eating until the benefit from eating an extra pound of food equals $0, since that is the extra cost to them for each extra pound of food eaten. At University B, the cost of eating an extra pound of food is $2, so people will stop eating when the benefit of eating an extra pound equals $2. Food consumption will thus be higher at University A. Chapter 2 2. Ted can wax a car in 20 minutes or wash a car in 60 minutes. Tom can wax a car in 15 minutes or wash a car in 30 minutes. What is each man’s opportunity cost of washing a car? Who has comparative advantage in washing cars? Answer : In time it takes Ted to wash a car he can wax three cars. So his opportunity cost of washing one car is three wax jobs. In the time it takes Tom to wash a car, he can wax two cars. So his opportunity cost of washing one car is two wax jobs. Because Tom’s opportunity cost of washing a car is lower than Ted’s, Tom has a comparative advantage in washing cars.
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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