Kelly is an attorney and also an excellent typist. She can type 120 words per minute, but she charges attorney fees at $100 per hour. Todd would like some typing work but can only type 60 words per minute. According to the law of comparative advantage, Kelly should hire Todd to do her typing if and only if his wage rate is less than
A) $10 per hour.
B) $50 per hour.
C) $60 per hour.
D) $100 per hour.

Question

Quizplus · Accepted Answer

According to the law of comparative advantage, Kelly should specialize in what she is best at, which is practicing law and charging attorney fees at $100 per hour. Typing, on the other hand, is something Todd can do more efficiently, given his typing speed of 60 words per minute. Kelly's opportunity cost of typing is $100/hour, which means she is giving up $100/hour in attorney fees for every hour she spends typing. Therefore, Kelly should only hire Todd to do her typing if his wage rate is less than $100/hour. Since Todd can only type at 60 words per minute and Kelly can type at 120 words per minute, Todd's wage rate should be less than half of Kelly's opportunity cost, which is $50/hour. Therefore, the correct choice is B.

Kelly Is an Attorney and Also an Excellent Typist