Question

	Milk	Juice
Marc	8 bottles of milk	6 bottles of juice
Mike	4 bottles of milk	2 bottles of juice

1. Draw the potential possibilities frontier for Marc and Mike
2. Determine who has the absolute advantage in milk and juice production
3. Determine who has the comparative advantage in producing milk and in producing juice by using the law of opportunity cost

Answer 1

Attached Potential possibility frontier for Marc and Mike

Since Marc can produce both higher number of Milk and Juice when compared to Mike, Marc has absy advantage in producing Milk and Juice

Marc opportunity cost for producing Milk =6/8=0.75Juice,Mike opportunity cost for producing Milk=2/4=0.5Juice, since Mike has lower opportunity cost in terms of Juice for Milk,Mike has comparative advantage in producing Milk

Marc opportunity cost for producing Juice =8/6=1.33 Bottle Milk and for Mike is 4/2=2 bottle Milk since Marc has lower opportunity cost in producing Juice in terms of Milk ,Marc has comparative advantage in producing Juice