Question

5. George and Fred run a bakery. Consider the following information about George and Fred’s production possibilities:

G	G	F	F
Pies per week	Cakes per week	Pies per week	Cakes per week
0	40	0	24
15	30	12	18
30	20	24	12
45	10	36	6
60	0	48	0

The table identifies the different combinations of pies and cakes that can be made in a week for each person. Based on the information given, ____ has an absolute advantage in making cakes and _____ has a comparative advantage in making cakes.

a. G:G

c. F:F

d. F:G

Answer 1

Answer
option a
G; G
the G has an absolute advantage is dependent on the absolute higher production and G has higher production than F in cakes
so G has an absolute advantage in cakes
the opportunity cost of a good =maximum production of the other good/maximum production of the good
the opportunity cost of the pies for G=40/60
=0.67
The opportunity cost of pies for F =24/48=0.5
the opportunity cost of pies is lower for F so F has the comparative advantage in pies and G has the comparative advantage in cakes

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