If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. Which of the following statements is correct?
A)Ana has both an absolute advantage and the comparative advantage in fudge.
B)Ana has the comparative advantage in toffee, but Leo has the absolute advantage in toffee.
C)Ana has the comparative advantage in fudge, but Leo has the absolute advantage in fudge.
D)Leo has both the absolute advantage and the comparative advantage in fudge.

Question

Quizplus · Accepted Answer

Ana's opportunity cost of 1 pound of fudge is 2/3 of a pound of toffee, while Leo's opportunity cost of 1 pound of fudge is 5/4 of a pound of toffee.  Since 2/3 < 5/4, Ana has the comparative advantage in fudge.  However, since Leo can produce 4 pounds of fudge per hour, while Ana can produce only 3 pounds per hour, Leo has the absolute advantage in fudge.

If Ana Devotes All Her Time to Making Fudge, She