Question

McDonalds’ and Burger King are two firms that make Burgers (B) and Fries (F). Suppose both have the following production possibility frontiers (PPF):

McDonalds’ PPF:       B=3-14F

Burger King’s PPF:     B=5-12F

1. Which firm has a comparative advantage in making Burgers? (2 points)
2. For which firm the bundle (B = 1, F = 4) is attainable? (1 point)

Answer 1

Question)

We have, PPF of Mc Donalds = B + F/4 = 3

=> 4B + F = 12

Now, B=0 => F = 12 and F = 0 => B = 3

Thus, Opportunity cost of burger in terms of fries = 12/3 = 4 fries

Further, we have the PPF of Burgr King = B + F/2= 5

=> 2B + F = 10

Now, B=0 => F = 10 and F = 0 => B = 5

Thus, the Opportunity cost of burger in terms of fries = 10/5 = 2 fries

As the opportunity cost of burgers in terms of fries is lesser in Burger King, BK has a comparative advantage in burgers.

Q2) The bundle (B=1, F=4) is attainable for both the firms.

Putting the value F =4 in PPF of Mcdonalds, we get

B = 3-1 = 2 >1

Putting the value F =4 in PPF of Burger king, we get

B = 5-2 = 3 >1