Al and Bill are the only workers in a small factory that makes geegaws and doodads.Al can make 7 geegaws per hour or 14 doodads per hour.Bill can make 4 geegaws per hour or 24 doodads per hour.Assuming that neither of them finds one task more odious than the other,
A)Bill has a comparative advantage in producing geegaws and Al has a comparative advantage in producing doodads.
B)Bill has a comparative advantage in producing both geegaws and doodads.
C)Al has a comparative advantage in producing both geegaws and doodads.
D)Al has a comparative advantage in producing geegaws and Bill has a comparative advantage in producing doodads.
E)both have a comparative advantage in producing doodads.

Question

Quizplus · Accepted Answer

To determine comparative advantage, we need to compare the opportunity cost of producing each good for each worker. Opportunity cost is the amount of one good that must be given up to produce one unit of the other good.

For Al, the opportunity cost of producing one geegaw is 2 doodads (since he can produce 7 geegaws or 14 doodads per hour). The opportunity cost of producing one doodad is 0.5 geegaws (since he can produce 14 doodads or 7 geegaws per hour).

For Bill, the opportunity cost of producing one geegaw is 6 doodads (since he can produce 4 geegaws or 24 doodads per hour). The opportunity cost of producing one doodad is 0.17 geegaws (since he can produce 24 doodads or 4 geegaws per hour).

Since Al's opportunity cost of producing geegaws is lower than Bill's (2 vs 6), Al has a comparative advantage in producing geegaws. Similarly, since Bill's opportunity cost of producing doodads is lower than Al's (0.17 vs 0.5), Bill has a comparative advantage in producing doodads. Therefore, the best choice is D, where Al has a comparative advantage in producing geegaws and Bill has a comparative advantage in producing doodads.

Al and Bill Are the Only Workers in a Small