Question

5) Katie and Hugh are producing pies and jars of pickles. Katie can produce either 200 jars of pickles or 100 pies per month. Hugh can produce either 800 jars of pickles or 200 pies per month. Calculate Hugh and Katie's opportunity cost, who is better at doing each task?

Answer 1

	Jars of pickles per month	Pies per month
Katie	200	100
Hugh	800	200

	Jars of pickles per month in terms of pies	Pies per month in terms of jars of pickles
Katie	100/200=1/2 pie	200/100=2
Hugh	200/800=1/4 pie	800/200=4

1. Katie’s opportunity cost of making jars of pickles per month = ½ a pie

Hugh’s opportunity cost of making jars of pickles per month= 1/4^th of pie.

2. Katie’s opportunity cost of making pies per month= 2 jars of pickles.

Hugh’s opportunity cost of making pies= 4 jars of pickles.

Hugh is better at making jars of pickles since the opportunity cost is lower than Katie’s. He has to give up 1/4^th of pie, whereas, Katie has to give up ½ a pie.

Katie has a comparative advantage in making pies per month as her opportunity is lower. She has to give up 2 jar of pickles, whereas, Hugh has to give up 4 jars of pickles.