Suppose that opportunity costs are constant and that Fred can either bake a maximum of six pies or three cakes in a day. Ethel can produce a maximum of eight pies or two cakes in a day. Ethel has an comparative advantage in the production of
A) cakes.
B) pies.
C) both cakes and pies.
D) neither cakes nor pies.

Question

Quizplus · Accepted Answer

To determine comparative advantage, we compare the opportunity costs of producing one good over another for both parties. For Fred, the opportunity cost of producing one cake is two pies (6 pies/3 cakes = 2 pies per cake). For Ethel, the opportunity cost of producing one cake is four pies (8 pies/2 cakes = 4 pies per cake). Since Ethel's opportunity cost of producing cakes is higher, she has a comparative advantage in producing pies, where her opportunity cost is lower relative to Fred.

Suppose That Opportunity Costs Are Constant and That Fred Can