Question

In: Economics

Debra can make either 12 cakes or 16 cookies in 4 hours. Sam can make either...

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?  

Solutions

Expert Solution

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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