Question

Comparative and absolute advantage

Dmitri and Frances are farmers. Each one owns a 12-acre plot of land. The following table shows the amount of rye and corn each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing rye or corn or to produce rye on some of the land and corn on the rest.

	Rye	Corn
	(Bushels per acre)	(Bushels per acre)
Dmitri	18	6
Frances	28	7

Answer 1

Absolute advanatge in a good implies that a producer is able to produce more as compare to competitive firm with given amount of resources.

According to table:

Frances can produce 28 bushels of Rye and Dmitri can produce 18 bushels of Rye. So here Frances can produce more Rye with one acre of land so Frances has absolute advantage in production of Rye.

Frances can produce 7 bushels of Corn and Dmitri can produce 6 bushels of Corn. So here Frances can produce more Corn with one acre of land so Frances has absolute advantage in production of Corn.

Comparative advantage in a good implies that a producer is able to produce a good at lower opportunity cost as compare to its competitor.

According to table:

Dmitri's opportunity cost of producing 1 unit of Rye is 1/3 unit of corn.

Frances's opportunity cost of producing 1 unit of Rye is 1/4 unit of corn.

Here Frances can produce Rye at lower opportunity cost so Frances has comparative advantage in production of Rye.

Dmitri's opportunity cost of producing 1 unit of Corn is 3 units of Rye.

Frances's opportunity cost of producing 1 unit of Corn is 4 units of Rye.

Here Dmitri can produce Corn at lower opportunity cost so Dmitri has comparative advantage in production of Corn.