Question

Smoothies Cell phones Martha 15 per day 3 per day Kelly 10 per day 1 per day This table shows the how many smoothies or cell phones Martha and Kelly can each produce if they put all of their respective resources into producing that good alone. Use this information to answer the following questions:

Answer 1

1. With the given resources, Martha produces 15 smoothies as compared to 10 smoothies produces by Kelly. So, Martha has an absolute advantage in production of smoothies.

2. With the given resources, Martha produces 3 cell phones as compared to 1 cell phone produced by Kelly. Since Martha produces more with the given resources, Martha has an absolute advantage in production of cell phones.

3. Martha can produce either 15 smoothies or 3 cell phones such that,

15 smoothies = 3 cell phones

1 smoothie = 3 / 15 cell phones

1 smoothie = 1 / 5 cell phones

1 smoothies = 0.2 cell phones

So, the opportunity cost of 1 smoothie is 0.2 cell phones for Martha.

4. Kelly can produce either 10 smoothies or 1 cell phone such that,

10 smoothies = 1 cell phone

1 smoothie = 1 / 10 cell phone

1 smoothie = 0.1 cell phone

So, the opportunity cost of producing 1 smoothie is 0.1 cell phone for Kelly.

5. Martha can produce either 2 cell phones or 15 smoothies such that,

3 cell phones = 15 smoothies

1 cell phone = 15 / 3 smoothies

1 cell phone = 5 smoothies

So, the opportunity cost of 1 cell phone is 5 smoothies for Martha.

6. Kelly can produce either 1 cell phone or 10 smoothies such that,

1 cell phone = 10 smoothies

So, the opportunity cost of 1 cell phone is 10 smoothies for Kelly.

7. Kelly has a comparative advantage in production of smoothies since she has to give up 0.1 units of cell phone while Martha has to give up 0.2 units of cell phone which is more than what Kelly has to give up. So, Kelly has a comparative advantage in the production of cell phones.

8. Martha has comparative advantage in production of cell phones since she has to give up only 5 units of smoothies for 1 unit of cell phone while Kelly has to give up 10 units of smoothies for 1 unit of cell phone. Since, Martha has to give up less, she has a comparative advantage in production of cell phones.