Question

Eileen and Clancy need to decide which one of them will take time off from work to complete the rather urgent task of digging postholes for their new fence. Eileen is pretty good with a post auger; she can dig the holes in 30 minutes. Clancy is somewhat slow; it takes him 6 hours to dig the holes. Eileen earns $180 per hour as a lawyer, while Clancy earns $20 per hour as a barber.

Keeping in mind that either Eileen or Clancy must take time off from work to dig the holes, who has the lower opportunity cost of completing the task?

Clancy

Eileen and Clancy face identical opportunity costs

Eileen

4. Fill in the Blanks:

1st blank: $0.05 or $5.00 or $20.00 or $.20

2nd blank: Eric or Alison

Eric and Alison are partners at a management consulting firm. They are trying to determine which of them has a comparative advantage in creating the 100 slides required for a sales pitch to a prospective client.

Eric can create 25 slides per hour. For other activities, he can bill clients $500 per hour. Eric's opportunity cost of creating slides is ________ per slide.

Alison's opportunity cost of creating slides is 25% higher than Eric's. However, as the junior partner, her billing rate is 20% lower. Based on all of these facts, ______ has a comparative advantage in creating slides.

Answer 1

Answer 3 : Clancy has lower opportunity cost of doing the digging work as compared to Eileen because opportunity cost of Eileen is quite higher as compared to Clancy. So it is better that digging work should be performed by the Clancy as there cost of operation is quite less.

Answer 4: Eric Opportunity cost of per slide =$500/25= $20 per slide.

Eric has comparative advantage in creating a slide because it has less opportunities cost as compared to the Alison . The person which has lower Opportunity cost has been resulted in gaining comparative advantage of producing particular good .