If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Tina has a comparative advantage in producing banana splits.

Question

Quizplus · Accepted Answer

To determine who has a comparative advantage in producing a particular good, we need to compare the opportunity cost of producing that good between the two individuals. The opportunity cost is the value of the next best alternative forgone. In this case, for Eddie to produce 1 banana split, he would have to give up producing 2 milk shakes. For Tina to produce 1 banana split, she would have to give up producing 1.875 milk shakes (30/16). Therefore, Tina has a lower opportunity cost of producing banana splits and thus has a comparative advantage in producing that good.

If Eddie Can Produce 40 Milk Shakes or 20 Banana