For each fancy dress Cafilla produces,it gives up the opportunity to make 50 pounds of cheese.Bodoni can produce one fancy dress for every 100 pounds of cheese it produces.If specialization and trade were to occur between these two countries,which of the following would be consistent with the theory of comparative advantage?

A) Cafilla has the comparative advantage in dresses and cheese.
B) Bodoni has the comparative advantage in dresses and cheese.
C) Bodoni has the comparative advantage in only dresses.
D) Cafilla has the comparative advantage in only dresses.
E) Cafilla has the comparative advantage in only cheese.

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Jesse Corby · Accepted Answer

Final Answer : D, Explanation :  According to the given information, Cafilla gives up the opportunity to make 50 pounds of cheese for each fancy dress, while Bodoni produces one fancy dress for every 100 pounds of cheese it produces. This means that for every one fancy dress produced by Cafilla, it has given up the opportunity to produce 50 pounds of cheese, while for every one fancy dress produced by Bodoni, it has only given up the opportunity to produce 100 pounds of cheese. Therefore, Cafilla has a lower opportunity cost of producing dresses, and thus has a comparative advantage in producing dresses. Bodoni has a lower opportunity cost of producing cheese, but since it can only produce one fancy dress for every 100 pounds of cheese, it has a higher opportunity cost of producing dresses compared to Cafilla. Hence, the best choice is D - Cafilla has the comparative advantage in only dresses.

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