Meagen\'s Production Pies 20 15 10 Bread 0 15 30 45 60 Jim\'s Production Pies 80
ID: 1148226 • Letter: M
Question
Meagen's Production Pies 20 15 10 Bread 0 15 30 45 60 Jim's Production Pies 80 60 40 20 Bread 10 20 30 40 Meagen and Jim both produce pies and loaves of bread for bakeries in the Macro Islands. The table above shows some of the combinations of the two products that can be produced using the same resources Use the table above to answer the following questions: a. What is Meagen's opportunity cost for producing 1 pie and 1 loaf of bread? b. What is Jim's opportunity cost for producing 1 pie and 1 loaf of bread? c. Who has the comparative advantage in the production of each good?Explanation / Answer
Opportunity cost is the amount of something that is given up to achieve some other thing. When two nations trade on the principles of comparative advantage, each of them specialize in the product in which it has lowest opportunity cost.
1) The Opportunity cost to produce 1 pie for Meagen is 3 (60-45/5-0) bread loaves. Similarly the opportunity cost of producing 1 bread loaf is 1/3 pies.
2) The Opportunity cost to produce 1 pie for Jim is 0.5 (40-30/20-0) bread loaves. Similarly the opportunity cost of producing 1 bread loaf is 2 pies.
3) Hence Jim has a comparative advantage in the production of pie and Meagen has a comparative advantage in the production of bread.