Two nations have the following production capacity given their endowment of resources. Country A can produce 40 units of beer or 90 units of pizzas. Country B can produce 120 units of beer or 70 units of pizzas. Which of the following statements is most appropriate to decide how these countries should specialize?
A. Country B has an absolute advantage in both products.
B. Country A has a comparative advantage in pizza and country B has a comparative advantage in beer.
C. Country A has no comparative advantage and country B has a comparative advantage in beer.
D. Country A has a comparative advantage in beer and country B has a comparative advantage in pizzas.
Ans: B. Country A has a comparative advantage in pizza and country B has a comparative advantage in beer.
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