Question

Mark and David produce two goods in an 8 hour day. Mark can produce 10 capital...

Mark and David produce two goods in an 8 hour day. Mark can produce 10 capital or 55 comsumables and David can produce 75 capital and 60 consumables

. A. Who has the absolute advantage in the production of comsumables ?

B. Who has the absolute advantage in the production of capital ?

C. Who has a comparative advantage in the production of consumables?

D. What is the opportunity cost for capital?

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Homework Answers

Answer #1

a) David has an absolute advantage in the production of consumables because he can produce more than Mark in the given time.

b) David again has the absolute advantage in the production of capital because he can produce more than Mark in the given time.

c) Opportunity Cost to produce consumables for

Mark = 10/55 = 0.18

David = 75/60 = 1.25

SO, Mark has the comparative advantage in consumables as the OC is lower

d) OC to produce Capital for

Mark = 55/10 = 5.5

David = 60/75 = 0.8

So, David has the comparative advantage in capital as the OC is lower

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