Question

Jon Snow works as a professional DJ. He also works as a dog groomer in order to afford rent at Castle Black. He can groom 20 dogs an hour, but is pressed for time because he has all the DJ work he can handle at $50 an hour. Samwell “Sam” Tarly, who is an amateur DJ himself, can also groom dogs, but due to his fear of dogs, Sam can only groom 10 dogs per hour.  

According to the law of comparative advantage, Jon Snow should hire Sam to cover his shifts grooming dogs if and only if Sam’s wage rate as a DJ is less than…

(In other words, when does Sam have a comparative advantage in grooming dogs?)

$10 per hour

$25 per hour

$50 per hour

$100 per hour

Answer 1

The correct answer is (b) $25 per hour

Sam will have a comparative advantage in grooming dogs If opportunity cost of grooming dogs is lesser for Sam as compared to Jon.

In one hour Jon can groom 20 dogs and also in one hour if he works as a DJ he can earn $50. Hence In order to groom 20 dogs he have to sacrifice $50. Hence In order to groom 1 dog he has to sacrifice 50/20 = $2.5. Hence opportunity cost of grooming Dogs for Jon is $2.5

In one hour Sam can groom 10 dogs and Let in one hour if he works as a DJ he can earn $X. Hence In order to groom 10 dogs he have to sacrifice $X. Hence In order to groom 1 dog he has to sacrifice X/10. Hence opportunity cost of grooming Dogs for Sam is X/10. Hence Sam will have comparative advantage in Grooming Dog If X/10 < 2.5 => X < $25

Hence, The correct answer is (b) $25 per hour