Question

Felix and Janet are farmers. Each one owns a 12-acre plot of land. The following table shows the amount of corn and rye each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing corn or rye or to produce corn on some of the land and rye on the rest.

Corn

Rye

(Bushels per acre)

(Bushels per acre)

Felix

20

4

Janet

28

7

2. Comparative and absolute advantage

Felix and Janet are farmers. Each one owns a 12-acre plot of land. The following table shows the amount of corn and rye each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing corn or rye or to produce corn on some of the land and rye on the rest.

	Corn	Rye
	(Bushels per acre)	(Bushels per acre)
Felix	20	4
Janet	28	7

_____has an absolute advantage in the production of corn, and ____   has an absolute advantage in the production of rye. Felix's opportunity cost of producing 1 bushel of rye is____bushels of corn, whereas Janet's opportunity cost of producing 1 bushel of rye is bushels of corn. Because Felix has a ____ (lower/higher) opportunity cost of producing rye than Janet,___   has a comparative advantage in the production of rye, and ____ has a comparative advantage in the production of corn.

Answer 1

Output table when both uses 12 acres land is as follows.

	Corn	Rye
Felix	20 x 12 = 240	4 x 12 = 48
Janet	28 x 12 = 336	7 x 12 = 84

Janet has absolute advantage in corn (since she can produce more corn than Felix can), and Felix has absolute advantage in rye (since he can produce more rye than Janet can).

Felix's opportunity cost of rye is 5 bushels of corn (= 240/48) and Janet's  opportunity cost of rye is 4 bushels of corn (= 336.84).

Because Felix has higher opportunity cost of rye than Janet, Janet has comparative advantage in rye and Felix has comparative advantage in corn.