In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, John can produce either 8 loaves of bread or 8 pounds of butter. The opportunity cost of producing 1 pound of butter is

a. 1/3 hour for Andy and 1 hour for John.

b. 1 hour for Andy and 1 hour for John.

c. 3 loaves of bread for Andy and 1 loaf of bread for John.

d. 1/3 loaves of bread for Andy and 1 loaf of bread for John.

e. none of the above

Option (c) is correct.

Explanation:

Andy can produce 24 loaves of bread or 8 pounds of butter:

Opportunity cost of producing 1 pound of butter = (24 : 8)

= 3 loaves of bread

John can produce 8 loaves of bread or 8 pounds of butter:

Opportunity cost of producing 1 pound of butter = (8 : 8)

= 1 loaves of bread

Therefore,

John has a comparative advantage in producing butter because of lower opportunity cost.

Hence, the opportunity cost of producing 1 pound of butter is 3 loaves of bread for Andy and 1 loaves of bread for John.