In: Economics
Debra can make either 12 cakes or 16 cookies in 4 hours. Sam can make either 6 cakes or 12 cookies in 4 hours.
a. Who has an absolute advantage at producing cakes and who has an absolute advantage at producing cookies? Briefly explain your answers.
b. State Debra’s and Sam’s opportunity costs of producing one cake and one cookie. Draw and place your answer in a table.
c. If both Debra and Sam concentrate on producing only the product in which they have a comparative advantage, how many cakes and how many cookies will they produce?
a. Who has an absolute advantage at producing cakes and who has an absolute advantage at producing cookies? Briefly explain your answers.
Absolute advantage at producing cakes
Absolute advantage means more number of output than competitors
Debra can make 12 cakes which is more than Sam
Debra has absolute advantage in producing cakes
Absolute advantage at producing cookies
Absolute advantage means more number of output than competitors
Debra can make 16 cookies which is more than Sam
Debra has absolute advantage in producing cookies
State Debra's and Sam's opportunity costs of producing one cake and one cookie.
Opportunity cost of Debra for 1 cake
= Total cookies / Total cakes = 16 / 12 = 1.33 cookies
Opportunity cost of Debra for 1 cookies
= Total cakes / Total cookies = 12 / 16 = 0.75 cakes
Opportunity cost of Sam for 1 cake
= Total cookies / Total cakes = 12 / 6 = 2 cookies
Opportunity cost of Debra for 1 cookies
= Total cakes / Total cookies = 6 / 12 = 0.5 cakes
If both Debra and Sam concentrate on producing only the product in which they have a comparative advantage, how many cakes and how many cookies will they produce
Comparative advantage means lower opportunity cost.
Debra has lower opportunity cost in producing cakes than Sam, so Debra will produce only cakes.
Sam has lower opportunity cost in producing cookies than Debra , so Sam will produce only cookies.
Debra will produce 12 cakes
Sam will produce 12 cookies
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