Question

Eric and Deborah are partners at a law firm. They are trying to determine which of them has a comparative advantage in typing the 25 pages required for a sales pitch to a prospective client.
Eric can type 20 pages per hour. For other activities, he can bill clients $500 per hour. Eric's opportunity cost of typing pages is_____per page.
Deborah's opportunity cost of typing pages is 25% lower than Eric's. However, as the senior partner, her billing rate is 20% higher. Based on all of these facts,_____has a comparative advantage in typing pages.

Answer 1

Answer:

Eric's opportunity cost of typing pages is $25 per page.

Based on all of these facts, Deborah has a comparative advantage in typing pages.

Explanation:

Eric's opportunity cost of typing is $500 / 20 pages = $25 per page.

Since's Deborah's opportunity cost of typing pages is 20% less than Eric's, then she has a comparative advantage in typing pages.

The person, business or country with the lowest opportunity cost has the comparative advantage in producing that good.