Question

What are each individual’s opportunity costs of producing fish and rabbit? Which person has an absolute advantage in producing fish and rabbit? Which person has a comparative advantage in producing fish and rabbit?

Answer 1

The following are each individuals opportunity cost, absolute advantage, and comparative advantage in producing fish and rabbits:

Opportunity cost:

• The individual who is producing rabbits pays the opportunity cost for not producing fish, whereas, the individual who is producing fish pays the opportunity cost for not producing rabbits.

Absolute advantage:

• The individual who bears the lowest marginal cost in producing rabbits has an absolute advantage in producing rabbits and the one who bears the lowest marginal cost is producing fish has an absolute advantage in producing fish.

Comparative advantage:

• The individual who has the lowest opportunity cost in producing fish instead of rabbits has a comparative advantage in producing fish and the one who has the lowest opportunity cost in producing rabbits instead of fish has a comparative advantage in producing rabbits.