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.
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, <em>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.</em>
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