Answer:
Amy has absolute advantage in the production of Apples pies and ice cream.
Amy has comparative advantage in the production of Apple pies.
Brad has a comparative advantage in production of ice creams
Amy should specialise in the production of Apple pies, brad should specialise in the production of icecream
Explanation:
A person has comparative advantage in production if he produces at a lower opportunity cost when compared with other people.
Brad's opportunity cost:
In producing apple pies = 10 / 5 = 2
In producing ice cream :5 / 10 = 0.5
Amy's opportunity cost:
In producing apple pies : 15/15 = 1
In producing icecreams : 15/15 = 1
Amy has the lower opportunity cost when compared with Brad in producing apples pies. Therefore, she has comparative advantage in the production of Apple pies.
Brad has the lower opportunity cost when compared with Amy in producing ice cream. Therefore, he has comparative advantage in the production of ice cream.
A person should specialise and trade the good for which she has a comparative advantage.
A person has absolute advantage in the production of a good or service If he produces more quantity of the good when compared with other people.
Amy has absolute advantage in the production of both goods.
