Opportunity Cost Calculation for Trades
1. Consider two individuals, Teresa and Justin, who produce vegetables. Each uses the same number of workers to produce tomatoes or peppers. Production per lot (in kilograms) is shown in the following table.
Teresa | Justin | |
Tomatoes | 100 | 80 |
Peppers | 130 | 120 |
Who has a comparative advantage in producing peppers and tomatoes? Explain
My Attempt:
Teresa
- Opportunity cost of Tomatoes = 130 / 100 = 1.3 Pepper
- Opportunity cost of Pepper = 100 / 130 = 0.769 Tomato
Justin
- Opportunity cost of Tomatoes = 120/80 = 1.5 Pepper
- Opportunity cost of Pepper = 80/120 = 0.667 Tomato
Teresa has a comparative advantage in the production of Tomatoes because she has a lower opportunity cost (1.3 Pepper vs Justin's 1.5 Pepper).
Justin has a comparative advantage in the production of Peppers because he has a lower opportunity cost (0.667 Tomato vs Teresa's 0.769 Tomato)
Answer (found online, not sure if its correct):
In Teresa’s case, the opportunity cost of tomatoes is 100/130 = 0.76 peppers and the opportunity cost of peppers is 130/100 = 1.3 tomatoes. In case of Justin, the opportunity cost of tomatoes is 80/120 = 0.66 peppers and the opportunity cost of peppers is 120/80 = 1.5 tomatoes. Teresa has a comparative advantage in producing peppers (1.3 < 1.5) and Justin has a comparative advantage in producing tomatoes (0.66 < 0.76).
Hi, can someone please help me check my attempt? I don't quite understand the answer I found online (not sure if it's even correct in the first place).
Homework Answers
ANSWER :
You have worked out the problem corretly. Online answer is not correct.
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advantage in the production of rye and Jonas, or Janis has an
absolute advantage in the production of alfalfa. Jonas’ opportunity
cost of producing one ton of alfalfa is 2, 3, 4, or 5 tons of rye,
while Janis opportunity cost of producing a ton of alfalfa is 2, 3,
4, or 5, tons of rye. Because Jonas has a higher or lower
opportunity cost of producing alfalfa that Janis. Janis or Jonas
has...
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