Question

Vincent and Jean are two cooks who work in a village. Each of them can either bake cakes or make pizzas. Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Please answer the four questions. 1 . Which cook has the absolute advantage in baking cakes? Vincent Neither Jean 2 . Which cook has the absolute advantage in making pizzas? Vincent Neither Jean 3 . Which cook has the comparative advantage in baking cakes? Vincent Neither Jean 4 . Which cook has the comparative advantage in making pizzas? Vincent Jean Neither

Answer 1

Answer:

a) Jean b) Jean c) Vincent d) Jean              

Step-by-step explanation:

We are given the following information in the question.

Vincent can bake 10 cakes or make 5 pizzas

Jean can bake 12 cake or make 8 pizzas.

a) Absolute advantage of baking cake

Jean has the absolute advantage of baking cake as he can bake more cakes as compared to Vincent.

b) Absolute advantage of making pizza

Jean has the absolute advantage of making pizza as he can make more pizzas as compared to Vincent.

In order to find comparative advantage, we find the opportunity cost which can be defined as:

$\text{Opportunity Cost} = \displaystyle\frac{\text{What one sacrifices}}{\text{What one gains}}$

c) Comparative advantage in baking cakes

Opportunity cost of Vincent for baking cakes = $\frac{5}{10} = \frac{1}{2}$

Opportunity cost of Jean for baking cakes = $\frac{8}{12} = \frac{2}{3}$

The less is the opportunity cost the better, hence, Vincent has comparative advantage in baking cakes.

d) Comparative advantage in making pizzas

Opportunity cost of Vincent for making pizzas = $\frac{10}{5} = 2$

Opportunity cost of Jean for making pizzas = $\frac{12}{8} = \frac{3}{2}$

The less is the opportunity cost the better, hence, Jean has comparative advantage in making pizzas.