Question

Don can produce 10 pens or 20 pencils in one hour, while Bob can produce 5, pencils or 15 pens in one hour. Which of the following statements us correct?

Answer 1

Answer:

c) Bob has a comparative advantage over Don in the production of pens

Explanation:

Comparative advantage is an economic term that refers to the ability of an individual, a company or a country to produce goods or services at a lower opportunity cost than others.  Comparative advantage enables a party to sell its products cheaper than others.

In this scenario, Bob produces 15 pens in an hour in comparison to Don, who produces only 10. It means Bob uses a  low cost of labor per pen in comparison to Don. Bob's production capacity of 15 pens also means a higher efficiency rate compared to Don. If a cost estimate were to be done, Bobs' pens would be more competitive in the market than Dons'.