Question

Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan’s opportunity cost of one apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production of ice cream. a. True b. False

Answer 1

Answer:

False

Explanation:

Comparative Advantage was propounded by David Ricardo.

It states that a country or an individual has an advantage over the other if it can produce a product at a lower opportunity cost.

Opportunity cost is the alternative forgone. It can also be called REAL COST or TRUE COST.

Ellie has a higher opportunity cost of producing ice cream compared to Brendan. She doesn't have a comparative advantage.

Brendan has a comparative advantage because she has a lower opportunity cost.

Answer 2

Answer: True

Explanation: Opportunity cost this is the profit lost when one alternative is selected over another based on choice. It's helps us examine all possible alternative before taking decisions. Ellie's has a competitive advantage in Ice cream production due it's opportunity cost for its next best alternative which is half (1/2) for ice cream compared to Brendan's one quarter (1/4) for same product.