Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6 tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.Who has a comparative advantage in which product
A)Mike in chairs, Sandy in tables
B)both Mike and Sandy in tables
C)both Mike and Sandy in chairs
D)Mike in tables, Sandy in chairs

Question

Quizplus · Accepted Answer

To determine comparative advantage, we need to calculate the opportunity cost of producing each item. The opportunity cost is the value of the next best alternative that must be given up in order to produce that item.

For Mike: 
Opportunity cost of 1 table = 3 chairs (since he can make 6 tables or 18 chairs in a month) 
Opportunity cost of 1 chair = 1/3 table

For Sandy: 
Opportunity cost of 1 table = 5 chairs 
Opportunity cost of 1 chair = 1/5 table

Comparing the opportunity costs, we can see that Mike has a lower opportunity cost for producing tables (1 table costs him 3 chairs) than Sandy (1 table costs her 5 chairs), so Mike has a comparative advantage in table production.

Conversely, Sandy has a lower opportunity cost for producing chairs (1 chair costs her 1/5 table) than Mike (1 chair costs him 1/3 table), so Sandy has a comparative advantage in chair production.

Therefore, the best choice is D, Mike in tables and Sandy in chairs.

Mike and Sandy Are Two Woodworkers Who Both Make Tables