Which firm is likely to see its profits reduced the most in a recession: an automobile producer, a manufacturer of boots and sho
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Answer:
b. cups and Juba has a comparative advantage in the production of bowls.
Explanation:
A company or country could said to have a comparative advantage if t produces a good or service with the lowest possible opportunity costs.
Bintu's opportunity cost of 1 unit of Bowls.
Bintu can produce 2 Bowls or 8 cups.
Therefore; 2 Bowls = 8 cups
We need to make it 1 Bowl, so we divide both sides by 2.
2 Bowls / 2 = 1 Bowl
8 cups / 2 = 4 cups
Hence, 1 bowl = 4 cups
Juba's opportunity cost of 1 unit of Bowls.
Juba can produce 4 Bowls or 6 cups.
Therefore; 4 Bowls = 6 cups
We need to make it 1 Bowl, so we divide both sides by 4.
4 Bowls / 4 = 1 Bowl
6 cups / 4 = 1.5 cups
Hence, 1 bowl = 1.5 cups
We now need to calculate the opportunity cost of 1 unit of cups from Bintu and Juba. This is just the same process as before, but with 1 unit of cup instead.
Bintus's opportunity cost of 1 unit of cups
Bintu can produce 8cups or 2 bowl.
Therefore, 8 cups = 2 bowls.
We need to make it 1 cup, so we divide both sides by 8.
8 cups / 8 = 1 cup
2 bowls /8 = 0.25 bowls.
Hence, 1 cup - 0.25 bowls
Juba's opportunity cost of 1 unit of cups.
Juba can produce 6 cups or 4 bowls.
Therefore, 6 cups = 4 bowls.
We need to make it 1 cup, so we divide both sides by 6.
6 cups /6 = 1 cup
4 bowls / 6 =0.67 bowl
Hence, 1 cup = 0.67 bowl
Now comparative advantage is when either of these two can produce a good with the lowest possible opportunity cost.
From the calculation above, the opportunity cost for bowl is 4 in Bintu and 1.5 in Juba. So since Juba has the lowest opportunity cost for bowls, it, therefore, Juba has a comparative advantage in the production of bowls. In the same way, since cost for Cups in Bintu is 0.25 and that of Juba is 0.67, then Bintu has a comparative advantage in the production of cups
