Question

Michael and Martha run a mechanic shop. In one hour Michael can perform eight oil changes or change ten tires. In one hour Martha can perform seven oil changes or change fourteen tires. Given this information which of the following is true?
A) Martha has a comparative advantage in changing oil.
B) Martha has an absolute advantage in changing oil.
C) Michael has a comparative advantage in changing tires.
D)Michael has an absolute advantage in changing tires.
E.) Michael has an absolute and a comparative advantage in changing oil

Answer 1

Answer:

E.) Michael has an absolute and a comparative advantage in changing oil

Explanation:

An individual has comparative advantage in production if it produces at a lower opportunity cost when compared with other individuals.

Opportunity cost of Michael in the changing of oil = 10/ 8 = 1.25

Opportunity cost of Michael in changing tyres = 8 / 10 = 0.8

Opportunity cost of Martha in the changing of oil = 14 / 7 = 2

Opportunity cost of Martha in the changing of tyres = 7 / 14 = 0.5

Michael has an opportunity cost in the changing of oil and Martha has an opportunity cost in the changing of tyres.

Absolute advantage in when an individual produces more quantity of a good or services when compared to others.

Michael changes more oil (8) than Martha (7). Martha changes more tyres (14) than Michael (7)

I hope my answer helps you.