Question

An economy produces only food and shelter. There are two individuals in the economy: Bill and Mary. Mary's opportunity cost of producing 1 unit of shelter is 2 units of food. Bill's opportunity cost of producing 1 unit of shelter is 4 units of food. Who has a competitive advantage?

Answer 1

Answer:

Mary

Explanation:

Mary has a competitive advantage and has a lower opportunity cost than Bill just having to sacrifice 2 units of food for 1 shelter, while Bill has to sacrifice 4 units of food for producing 1 unit of shelter. It is possible to observe this in the production relation:

Mary's productivity:

$\frac{1}{2}=0.5$

Bill's productivity:

$\frac{1}{4}=0.25$

We see that Mary has a higher productivity rate, which means that she has the competitive advantage