Question

Ada, Brenda and Cathy are good friends since high school. All of them have just completed a

degree in Business Administration. Brenda is an average student in both management and

marketing. Ada is a top student in marketing and is only okay in management. However, Ada is still

better than Brenda in both areas. Cathy is good in management but very poor in marketing.

(i) Suppose Ada plans to start a new business and looking for a partner from one of her two best

friends, explain why Cathy is a better choice for Ada?

(ii) If Cathy found a well-paid job and has no intension to start a business with Ada, do you think it is

still beneficial for Ada to form a partnership with Brenda given that she is better than Brenda in both

marketing and management? Explain your answer.

Hours Needed to Make 1 Unit of

Cheese Wine   

England 1 1

France 5 2

Answer 1

a) Ada, Brenda and Cathy have completed the degree in Business Administration.
Ada is a top student in marketing but not in the management. However, she is still better than Brenda.
Cathy is good at management but not in the marketing. Brenda is average in both the fields.

Now, Ada has a comparative advantage in marketing when compared to Brenda and Cathy.
Cathy has a comparative advantage in management when compared to Brenda and Ada.
It is better for Ada to rope in Cathy over Brenda because she is more skillful and could prove to be more beneficial.
Ada can use Cathay's skills in management to make up for her weaker part.

b) Cathy has decided to have a job instead of business with Ada. Now, Ada has left with Brenda as her next choice.
However, Ada is better that Brenda in both the fields still she should rope in Brenda.
Ada has an absolute advantage in both the skill set against Brenda but Ada has a comparative advantage in marketing. So she should specialize and use all her focus as well as resources for marketing and let Brenda handle the management. This will prove beneficial to her.