Question

Fred and Bamm-Bamm started to work at Joseph's Burger last week.

- Fred tosses 1 hour to make 1 BB (Barton Burger) and 1 hour to make 1 DD (Dyno Burger).

- Bamm-Bamm tosses 1 hour to make 1 BB (Barton Burger) and 0.5 hour to make 1 DD (Dyno Burger).

Both of them have 8 hours of labor per day.

1. Draw Fred and Bamm-Bamm's PPF

2. Identify who, if anyone, has an absolute advantage in BB and DD

3. Identify who, if anyone, has a comparative advantage in BB and DD

4. Identify who should specialize in BB and whom in DD

Answer 1

1) Fred ' PPF is as given

Fred can produce a maximum of 8 BB and 8DD if he produces either of them which is shown in his Ppf.

Bamm Bamm 's PPF is shown in the above graph. He can produce a maximum of 16 Dd and 8 BB if he produces either of them or can produce a combination on his PPC.

2) Absolute advantage is when one country or individual produces more of a good than the other one with same resources etc.

In case of BB , none of them have an absolute advantage because both of them with the same time period are able to produce 8 BBs at maximum.

In case of DDs , Bamm Bamm has an absolute advantage in production of DD as he takes half the time to produce one DD than Fred.

3) Comparative advantage refers to having lesser opportunity cost than the other in producing the same good.

Fred gives up one DD to produce one BB whereas Bamm Bamm gives up 2 DD to produce one BB given that he takes half the time to produce one DD. So Fred has less opportunity cost to produce BB.

In case of Bamm Bamm , in order to produce one DD he is giving up 1/2 BB ( because in. 1/2 hour , he can produce either 1DD or 1/2 BB) whereas Fred is giving up 1BB.

So here Bamm bamm has the comparative advantage.

4)The one having Specialisation should be the one producing it. Since Fred has the comparative advantage in production of BB and BammBamm has comparative advantage in DD's production, Fred produce BB and Bamm Bamm should produce DD.

(You can comment for doubts)