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 a comparative advantage in booking gigs.

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

Answer 1

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

(As Paul can write most number of songs so he has an absolute advantage in it as 26 > 20 and 16.
Opportunity cost of Peter of a song = Gigs given up/Songs written = 10/20 = 0.5 gig
Opportunity cost of Paul of a song = Gigs given up/Songs written = 5/26 = 0.19 gig
Opportunity cost of Mary of a song = Gigs given up/Songs written = 20/16 = 1.25 gig
So, Paul has a comparative advantage in songs because of lowest opportunity cost.)
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