Question

Two friends, Rachel and Joey, enjoy baking bread and making apple pie. rachel takes 2 hours to bake a loaf of bread and 1 hour to make a pie. Joey takes 4 hours to bake a loaf of bread and 4 hours to make a pie. please calculate to opportunity cost of baking bread for both rachel and joey. (teacher recommendsusing 4 hour blocks)
1. Who has the absolute advantage in baking bread?
2. Who has the comparative advantage?
3. Who should specialize in bread?
4. Who should specialize in pie?

Answer 1

Answer:

(i) Rachel

(ii) Joey in producing bread and Rachel in producing pie.

(iii) Joey

(iv) Rachel

Explanation:

Rachel can produce 24 pies or 12 loaves of bread in a day.

so that her opportunity cost of bread = 24/12

                                                              = 2 pies

opportunity cost of pie = 12/24

                                      = 0.5 loaf of bread

Joey can produce 6 pies or 6 loaves of bread in a day.

Joey’s opportunity cost of baking bread is similarly = 6/6

                                                                                      = 1 pies

opportunity cost of pie = 6/6

                                      = 1 loaf of bread

1. Rachel have an absolute advantage in baking bread as she is producing a loaf of bread with fewer resources.

2. Joey has an comparative advantage in producing bread as the opportunity cost of producing bread is lower for Joey than Rachel and Rachel has an comparative advantage in producing pie as the opportunity cost of producing it is lower than Joey.

3. Joey is specialize in bread.

4. Rachel is specializing in pie.