Question
The town of Franklin has an economy composed entirely of two equally sized specialized tire manufacturers. Both company X and company Z produce race car tires and airplane tires. Company X is better at producing race car tires than Company Z which is better at producing airplane tires. In order to maximize output, Company X should
A reduce its production of race car tires in order to commit resources to learn how to better produce airplane tires.
B produce both race car tires and airplane tires on its own and sell its excess race car tires to Company Z for additional airplane tires.
C abandon the production of airplane tires to fully specialize in the production of race car tires and then trade with Company Z for airplane tires.
This question is taken from Econ 002 – Principles of Macroeconomics » Winter 2021 » Module 1 Quiz
