Morgan and Oliver share a flat. They spend most of their time studying (of course), but they leave some time for their favourite activities: cooking pizza and making homebrew beer. Oliver takes 4 hours to produce 1 barrel of homebrew and 2 hours to make a pizza. Morgan takes 6 hours to brew 1 barrel of beer and 4 hours to make a pizza.

a. What is each flatmate’s opportunity cost of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza?

b. If Oliver and Morgan trade foods with each other, who will trade away pizza in exchange for homebrew?

c. The price of pizza can be expressed in terms of barrels of homebrew. What is the highest price at which pizza can be traded that would make both flatmates better off? What is the lowest price? Explain.