Question

Suppose workers in Freecia can produce two bushels of rice with the same amount of effort it takes them to produce one memory chip. Workers in Warmia can produce five bushels of rice with the same effort it takes them to produce two memory chips. Which of the following must be true?
A) Warmia has a comparative advantage in producing memory chips.
B) Warmia has an absolute advantage in producing memorychips.
C) Freecia has a comparative advantage in producing memory chips.
D) Freecia has an absolute advantage in producing memory chips

Answer 1

Answer:

Freecia has a comparative advantage in producing memory chips

Explanation:

Comparative advantage occurs when a company has an advantage over the other through the production of certain goods at a cheaper rate.

Looking at the given example , let us assume that the cost of producing a bushel of rice is $10 and memory chips is $10

Warmia produces two bushels of rice at $70 and a memory chip at $70(ratio 2:1) 1/3*70= 23.3

Freecia produces five bushels of rice at $70 and two memory chips at $7

(Ratio 5:2). 2/7*70=14

We can see that the cost of producing memory chips is cheaper fo Freecia