Question

In: Economics

Use the following scenario to answer the next eight questions: Rosa and Dirk produce basketballs and...

Use the following scenario to answer the next eight questions: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour.

Based on the scenario, which of the following is true?

1. Rosa has both an absolute and a comparative advantage in basketball production.

2. Rosa has neither an absolute nor a comparative advantage in football production.

3. Dirk has both an absolute and a comparative advantage in basketball production.

4. Rosa has both an absolute and a comparative advantage in football production.

5. Rosa has neither an absolute nor a comparative advantage in basketball production.

Solutions

Expert Solution

Rosa can produce higher number of basketballs. It means that Rosa has absolute advantage in producing basketballs

Dirk can produce higher number of footballs. It means that Dirk has absolute advantage in producing footballs.

Opportunity cost of producing basketball for Rosa=2/6 footballs=0.33 footballs per basketball

Opportunity cost of producing basketball for Dirk=4/3 footballs=1.33 footballs per basketball

Opportunity cost of producing basketball is lower in case of Rosa. It means Rosa has comparative advantage in producing basketball.

Opportunity cost of producing football for Rosa=6/2 basketballs=3 basketballs per football

Opportunity cost of producing football for Dirk=3/4 basketballs=0.75 basketballs per football

Opportunity cost of producing football is lower in case of Dirk. It means Dirk has comparative advantage in producing football.

We can summarize

Absolute Advantage

Basketball- Rosa

Football=Dirk

Comparative Advantage

Basketball- Rosa

Football-Dirk

1. Rosa has both an absolute and a comparative advantage in basketball production.

True- Refer above summary

2. Rosa has neither an absolute nor a comparative advantage in football production.

True- Refer above summary

3. Dirk has both an absolute and a comparative advantage in basketball production.

False- Refer above summary

4. Rosa has both an absolute and a comparative advantage in football production.

False-Refer above summary

5. Rosa has neither an absolute nor a comparative advantage in basketball production.

False-Refer above summary

Rahul Sunny answered 8 months ago
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