Question

There are two neighboring farmers - Shirley and Bob. Both make the same two products - wheat and corn. If Bob used all of his resources to harvest only corn then he would have 200,000 pounds of corn. If he only harvested wheat then he would have 300,000 pounds of wheat. If Shirley only harvested corn then she would have 400,000 pounds of corn. If she harvested just wheat then she would have 350,000 pounds of wheat.

Which farmer has the relative comparative advantage harvesting wheat? Who has relative comparative advantage harvesting corn?

Answers:

• No one has relative comparative advantage with Wheat.

  Shirley has relative comparative advantage with Corn.

• Shirley has relative comparative advantage with Wheat.

  Bob has relative comparative advantage with Corn.

• Shirley has relative comparative advantage with Wheat.

  Shirley has relative comparative advantage with Corn.

• Bob has relative comparative advantage with Wheat.

  Bob has relative comparative advantage with Corn.

• Shirley has relative comparative advantage with Corn.

  Bob has relative comparative advantage with Wheat.

Answer 1

	Wheat	Corn
Shirley	350000	400000
Bob	300000	200000

Shirley:

The Opportunity cost of producing wheat = 400000/350000 = 1.14

The Opportunity cost of producing corn = 350000/400000 = 0.875

Bob:

The opportunity cost of producing wheat = 200000/300000 = 0.66

The Opportunity cost of producing corn = 300000/200000 = 1.5

As Shirley opportunity cost of producing corn is lower than Bob so Shirley has a comparative advantage in producing corn

As Bob's opportunity cost of producing wheat is lower than Shirley's so Bob has a comparative advantage in producing wheat.

• Shirley has a relative comparative advantage with Corn.
• Bob has a relative comparative advantage with Wheat.