Question

Nathan and Lucas own separate tree farms that produce timber. Both farms are the same size and have the same resources available. Compared to Lucas, Nathan grows his trees closer to one another and as a result, produces more timber. Which of the following statements is true?
a. Lucas has a comparative advantage in producing timber.
b. Lucas has an absolute advantage in producing timber
c. Nathan has a comparative advantage in producing timber.
d. Nathan has an absolute advantage in producing timber.
e. Neither Nathan nor Lucas has an absolute advantage.

Answer 1

Answer:

The correct answer is letter "C": Nathan has a comparative advantage in producing timber.

Explanation:

Comparative advantage can be defined as the advantage an individual, institution or country has over competitors by producing at lower opportunity costs. Having a comparative advantage does not imply the individual or country has an absolute advantage which implies industry rivals are unlikely to imitate the comparative-advantage company due to factors such as uniqueness of the raw materials or processes in production.

Thus, as Nathan can grow trees closer to each other than in Lucas's farm, Nathan has a comparative advantage over Lucas since possessing farms the same size and counting on the same resources, Nathan can grow more trees and produce more timber.

Answer 2

Explanation:

c. Nathan has a comparative advantage in producing timber.