Leena and Susan both produce cupcakes. Leena's opportunity cost of producing cupcakes is lower than Susan's...
Leena and Susan both produce cupcakes. Leena's opportunity cost of producing cupcakes is lower than Susan's opportunity cost of producing cupcakes. Which of the following statements must be true?
a. Susan has a comparative advantage in producing cupcakes.
b. Leena has a comparative advantage in producing cupcakes.
c. Leena has an absolute advantage in producing cupcakes.
d. Susan has an absolute advantage in producing cupcakes.
Homework Answers
b. Leena has a comparative advantage in producing cupcakes is the correct option.
The reason for the correct option is that a person has a comparative advantage in producing a good when he/she is able to produce the good at a lower opportunity cost than others. In the question, Leena is able to produce cupcakes at a lower opportunity cost than Susan. therefore, she has a comparative advantage in the production of cupcakes.
The reason for incorrect options is that a person has an absolute advantage in producing a good when he/she is able to produce the good at a lower cost than others. In the question, no information about the cost of production is given. Therefore, we cannot tell who has an absolute advantage in the production of cupcakes..
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