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Maria and Jack spend their free time making chairs and tables. Maria can make 1 table...

Maria and Jack spend their free time making chairs and tables. Maria can make 1 table in 3 hours, and 1 chair in 2 hours, whereas Jack can make 1 table in 7 hours, and 1 chair in 5 hours. Which of the following exchanges would be beneficial for both of them?

a. Jack gives Maria 5 tables in exchange for 3 chairs
b. Jack gives Maria 1 chair in exchange for 2 tables

c. Jack gives Maria 7 chairs in exchange for 10 tables

d. Jack gives Maria 7 tables in exchange for 10 chairs

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Homework Answers

Answer #1

Let the time be 210 hours. Then Maria can make 70 tables or 105 chairs in this time. whereas Jack
can make 30 tables or 42 chairs in a total of 210 hours. The opportunity cost of 1 table for Maria is
105/70 = 1.5 chairs while it is 42/30 or 1.4 chairs for Jack. Maria should produce chairs that she is
having a comparative advantage in while Jack should produce tables. The trade price lies between
1.5 chairs and 1.4 chairs for 1 table.
When Jack gives Maria 7 tables in exchange for 10 chairs, the trade price is 1.42 chairs for 1 table so
Option D is correct.

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