Question

You and your friend Olivia are both volunteers at a cat rescue. The shelter supervisor asks the two of you to clean out kennels and haul bags of cat food from the donation area to storage. You know from your last time volunteering that you can clean out 10 kennels in an hour or move 5 bags of cat food. Olivia can clean out 6 kennels in an hour or move 6 bags of cat food. Olivia suggests that you split the tasks equally. Answer the following questions to determine if Olivia is making the best decision.

a. Who has an absolute advantage in doing each task?

b. What are Olivia’s opportunity costs of doing each task?

c. What are your opportunity costs of doing each task?

d. Who has a comparative advantage in doing each task?

e. Who should do each task to minimize the amount of time you both spend?

f. Was Olivia’s suggestion the best possible way to allocate your time? Why or why not?

Answer 1

Comparative Advantage

                                                                                      Me          Olivia

Clean Kennels (per hour)                                           10             5

Haul cat food bags (per hour)                                    6            6

a. Who has an absolute advantage in doing each task?

I have an absolute advantage in cleaning kennels as I take only 1/10th of an hour to clean kennels, whereas, Olivia needs 1/5th of an hour to clean kennels.

Olivia has an absolute advantage in hauling cat food as she needs only 1/6th of an hour to haul bags, whereas, I need 1/5th of hour to do so.

b. What are Olivia’s opportunity costs of doing each task?

Olivia’s opportunity cost of cleaning kennels in terms of hauling cat food is 6/10 or 0.6 cat food bags.

Olivia’s opportunity cost of hauling cat food in terms of cleaning kennels is 10/6 or 1.66 of cleaning kennels.

c. What are your opportunity costs of doing each task?

My opportunity cost of cleaning kennels in terms of hauling cat food is 6/5 or 1.2 cat food bags.

My opportunity cost of hauling cat food in terms of cleaning kennels is 5/6 or 0.83 of cleaning kennels.

d. Who has a comparative advantage in doing each task?

Olivia has a comparative advantage in cleaning kennels as the opportunity cost is lower. She has to give up only 0.6 of cat food, whereas, I have to give up 1.2 of cat food which is higher.

I have a comparative advantage in hauling cat food as the opportunity cost is lower. I have to give up to give up 0.83 of cleaning kennels, whereas, Olivia has to give up 1.66 of cleaning kennels which is higher

e. Who should do each task to minimize the amount of time you both spend?

Olivia has to clean kennels and I have to haul cat bags.

f. Was Olivia’s suggestion the best possible way to allocate your time? Why or why not?

No because of comparative advantage.