Question

Martha can produce 70 quilts or 140 batches of chocolate chip cookies in a month. Jane can produce 8 quilts or 24 batches of chocolate chip cookies in a month. Distinguish between comparative advantage and absolute advantage.

Answer 1

Answer:

Martha can produce 70 quilts or 140 batches of chocolate chip cookies:

Opportunity cost of producing a quilt = (140 ÷ 70)

                                                              = 2 batches of chocolate chip cookies

Opportunity cost of producing a batch of chocolate chip cookie = (70 ÷ 140)

                                                              = 0.5 quilts

Jane can produce 8 quilts or 24 batches of chocolate chip cookies:

Opportunity cost of producing a quilt = (24 ÷ 8)

                                                              = 3 batches of chocolate chip cookies

Opportunity cost of producing a batch of chocolate chip cookie = (8 ÷ 24)

                                                              = 0.33 quilts

Therefore, the comparative advantage is as follows:

Martha has a comparative advantage in producing quilt because it has a lower opportunity cost of producing quilt than Jane.

Jane has a comparative advantage in producing chocolate chip cookies because it has a lower opportunity cost of producing chocolate chip cookies than Martha.

Absolute advantage:

Martha has an absolute advantage in producing both the commodities because she can produce more amount of both the goods from the same level of resources as compared to Jane.