Suppose a used car dealer can earn an additional 25,000 in ...

[c0205847]

Suppose a used car dealer can earn an additional 25,000 in revenue per year by increasing advertising on a local radio station from 3 times a day to 5 times a day.
 
  At what additional cost would this increase in advertising not be considered economically rational?

Question 2

Using the above figure determine which country has the comparative advantage in the production of corn. In addition, determine which has the comparative advantage in the production of barley.
 
  What will be an ideal response?

[6ana001]

Answer to Question 1

If the additional cost of the increase in advertising exceeds 25,000 per year, the decision would not be economically rational.

Answer to Question 2

The United States has the comparative advantage in the production of barley. The reason is that the opportunity cost to the United States for producing one bushel of barley is one bushel of corn. By contrast, Mexico's opportunity cost of one bushel of barley is two bushels of corn. Since the opportunity cost of producing one bushel of corn in Mexico is one-half of a bushel of barley that gives Mexico the comparative advantage in the production of corn.