Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for these favourite activities. Making pizza and brewing root beer they decide to aside 6 hours for these activities. In that amount of time, Pat could brow 3 gallons of root beer or make 6 pizzas; and, Kris could brew 2 gallons of root beer or make 3 pizzas.
(a) Graph the two PPF’s for pat and kris?
(b) What is the opportunity cost for each person to make a pizza and to make a gallon of root beer?
(c) Who has the Absolute advantage in producing each good? Who has the comparative Advantage in producing each good? Who will trade away pizza for root beer?
(d) The price of pizza can be expressed in terms of gallons of root beer. What is the highest price at which pizza can be traded that would make both roommates better off? What is the lowest price? Explain.