Paulene and Charles, the only two people in an economy, can spend their time making either herbs or eggs.Each has four hours in total to work.Paulene can make either 36 bunches of herbs and 0 dozen eggs or no herbs and 12 dozen eggs in her four hours.Charles on the other hand can make 16 bunches of herbs if he spends all his time on herb production (and no eggs) or he can make eight dozen eggs in his four hours (and no herbs).Which statement is true?

Question

Quizplus · Accepted Answer

Paulene's opportunity cost of producing eggs is 3 bunches of herbs per dozen eggs (36 bunches / 12 dozen = 3), while Charles's opportunity cost is 2 bunches per dozen eggs (16 bunches / 8 dozen = 2). Therefore, Charles has the comparative advantage in egg production because he gives up less. For herbs, Paulene's opportunity cost is 0.33 dozen eggs per bunch of herbs (12 dozen / 36 bunches = 0.33), and Charles's is 0.5 dozen eggs per bunch (8 dozen / 16 bunches = 0.5), making Paulene more efficient in herb production.

Paulene and Charles, the Only Two People in an Economy