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1. (31 points) The average worker at Subway can make 10 roast beef sandwiches or 30 salads in one hour. The average worker at Arby’s can make 30 roast beef sandwiches or 30 salads in one hour. There are 10 workers at Arby’s and 10 workers at Subway.
1. Construct the PPFs for what each business can produce in one hour. (4)
2. If Subway and Arby’s each use half of their workers to make roast beef sandwiches and half of their workers to make salads, how many roast beef sandwiches and salads will each produce? Mark these points on the PPFs. How many total goods will each store produce? Combine the goods produced by Arby’s and Subway, how many total goods are produced? (10)
3. What is the opportunity cost for Subway for a roast beef sandwich? For a salad? (2)
4. What is the opportunity cost for Arby’s for a roast beef sandwich? For a salad? (2)
5. Who has the comparative advantage in roast beef sandwiches? In salads? (2)
6. If each company specializes and trades, who should produce what? (2)
7. If Arby’s and Subway specialize, how many goods will each company produce? What is the total number of goods produced? (3)
8. What should the trade rate be? (2)
9. Show on each graph a consumption point that is outside of the PPF and can be obtained by specializing and trading. (2)
10. Compare the amount of goods consumed after trade with the amount of goods available for consumption in question 2. (2)
