Question

If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if he devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. According to The Principle of Comparative Advantage, Ana and Leo will be able to produce more overall if:

Answer 1

Answer: If Ana produce more furge and Leo produce more toffee.

Step-by-step explanation:

Comparative advantage: A country or a person has a comparative advantage in producing a commodity if the opportunity cost of producing that commodity is lower in that country as compared to the other country.

Here Ana or Leo will gain comparative advantage only when they are selling the good they are specializing in and they would specialize in that good which would have lower opportunity cost for them.

(a) For Ana who devoted all of her time to making either 3 pounds of fudge or 2 pounds of toffee,

the opportunity cost for making 1 pound of furge is = 2/3 = 0.66

the opportunity cost for making 1 pound of toffee is = 3/2 = 1.5

(b) For Leo who devoted all of her time to making either 4 pounds of fudge or 5 pounds of toffee,

the opportunity cost for making 1 pound of furge is = 5/4 = 1.25

the opportunity cost for making 1 pound of toffee is = 4/5 = 0.8

Above calculations clearly shows that Ana has a comparative advantage in producing furge because opportunity cost of making furge is lower than the Leo, so he devotes most of his time to produce furge.

Whereas Leo has a comparative advantage in producing Toffee because opportunity cost of making toffee is lower than the Ana, so he devotes most of his time to produce toffee.