Question

Peter, Paul and Mary are in a band. They can each produce two goods: writing songs or booking gigs. They have one input, labor. Each person can produce the indicated maximum level, or any combination that lies on a straight line between their two maximum levels. Each person has 4,000 hours of labor. From this information we can conclude that

Person	Songs (Max Number)	Gigs (Max Number)
Peter	20	10
Paul	26	5
Mary	16	20

a)Paul has the absolute advantage and the comparative advantage in producing songs.

b)it is not possible to determine who has the absolute advantage in anything.

c)Mary has the absolute advantage in producing songs and the comparative advantage in booking gigs.

d)Paul has the comparative advantage in booking gigs.

e)Peter has the absolute advantage in nothing and the comparative advantage in producing songs.

Answer 1

Opportunity cost of producing person songs by

Peter. = 10/20 gigs = 0.5 gigs.

Paul = 5/26 gigs = 0.19 gigs.

Mary =20/16 = 1.25 gigs.

Opportunity cost of producing gigs by

Peter = 20/10 =2 person songs

Paul = 26/5 = 5.2 person songs

Mary = 16/20 = 0.8 person songs.

The correct option is therefore

a)Paul has the absolute advantage and the comparative advantage in producing songs.

This is because Paul produces maximum songs in absolute terms and it's opportunity cost is the minimum.