Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true?
A) Anita has the comparative advantage in the production of cakes.
B) John has the comparative advantage in the production of cakes.
C) John has the absolute advantage in the production of cookies.
D) Anita has the comparative advantage in the production of both cakes and cookies.

Question

Quizplus · Accepted Answer

Comparative advantage is determined by looking at the opportunity cost of producing one good versus another. In this case, Anita can produce 10 cakes or 0 cookies in a day while John can produce 7 cakes or 100 cookies in a day. Therefore, Anita's opportunity cost of producing one cake is zero cookies, while John's opportunity cost of producing one cake is approximately 14 cookies (100/7). This means that John has a lower opportunity cost of producing cookies than Anita and therefore has the comparative advantage in cake production.

Anita Is a Wonderful Baker and Can Bake 10 Cakes