Question

2. Maya can produce 10 hamburgers in one hour or 12 milkshakes in ½ hour, while Abe can produce 6 hamburgers in one hour or 5 milkshakes in ½ hour. We then know that:

a.) Maya has absolute advantage and comparative advantage in making hamburgers

b.) Abe has absolute advantage and comparative advantage in making milkshakes

c.) Maya has absolute advantage and comparative advantage in making milkshakes

d.) Abe has absolute advantage and comparative advantage in making hamburgers

Answer 1

Since absolute advantage can be defined as the ability of a party to produce a greater quantity of a goods or services compare to its rivals by using the same amount of resources.

Since Maya is producing more quantity of Hamburgers and milkshake with the same available resource compare to Abe. It means Maya has absolute advantage in the Hamburger producction as well as in Milkshake production.

A country has comparative advantage in the production of that good in which it has lower opportunity cost.

Hence it can be said that if a country has lower opportunity cost in producing a good, then this nation has a comparative advantage in the production of that good.

Maya

Opportunity cost of 1 Hamburgers= 12/10

=1.2 milkshake.

Opportunity cost of 1 Milkshake= 10/120

=0.833 Hamburgers

Abe

Opportunity cost of 1 Hamburgers= 5/6

=0.83 milkshake.

Opportunity cost of 1 Milkshake= 6/5

=1.2Hamburgers

So Maya has comparative advantage in the production of Milkshake becuase opportunity cost is less compare to Abe oppotunity cost.

So Abe has comparative advantage in the production of Hamburgers becuase opportunity cost is less compare to maya oppotunity cost.

It means Maya has comparative as well as absolute advantage in the production of milkshake.

Hence option C is the correct answer.

c.)Maya has absolute advantage and comparative advantage in making milkshakes