Question

12) Bob is a lawyer with a large law firm. He is very good at preparing briefs and
also is very good at typing. Bob's legal assistant Tom can prepare 1 legal brief
in two hours and Bob can prepare 1 legal brief in one hour. In one hour Tom
can type 6 pages and Bob can type 9 pages.

a)Which person has the absolute advantage in preparing briefs?
b) Which person has the absolute advantage in typing?
c) What is the opportunity cost of preparing one brief for Bob?
Hint: Using the same time required to prepare a brief, how many pages can Bob
type?
d) What is the opportunity cost of preparing one brief for Tom?
Hint: Using the same time required to prepare a brief, how many pages can Tom
type?
e) Which person has the comparative advantage in preparing briefs?
f) Which person has the comparative advantage in typing?

Answer 1

a)                 Briefs             Pages

Bob                  1                  9

Tom                 0.5               6

Absolute advantage is the ability to produce larger quantity with the same cost. Bob can prepare 1 legal brief in one hour but Tom can prepare 0.5 brief in one hour. Here Bob can preparer a larger quantity brief in one hour. So Bob has absolute advantage in the preparation of brief.

b) In one hour Bob can type 9 pages, but Tom can type 6 pages. Here Bob can type larger quantity in one hour. As such Bob has an absolute advantage in typing.

c) Opportunity cost is the next best alternative sacrifice for the production of one good or service. When one good is produced the amount of other goods is sacrificed is the opportunity cost of the good produced. Opportunity cost= what is sacrificed/what is gained. The opportunity cost of preparing 1 brief to Bob = 9/1=9.

d) The opportunity cost of preparing brief to Tom= 6/0.5=3, for producing half brief his opportunity cost is 3 pages. Then to produce 1 brief, his opportunity cost is 6 pages. The opportunity cost of producing 1 brief to Tom is 6 pages.

e) Comparative advantage is the ability to produce a good or service at a lower opportunity cost. The opportunity cost for producing brief to Bob is 9 pages. But the opportunity cost of producing brief to Tom is 6 pages.

Tom has a comparative advantage in preparing brief.

f)The opportunity cost of typing for Bob is 1/9=9

The opportunity cost in typing to Tom is 0.5/6=0.083(for preparing 1 brief the opportunity cost is 0.166).

Tom has a comparative advantage in typing.