Question

Mike has a linear production possibilities frontier that shows maximum production of trucks or computers of 10 million each. Debra also has a linear production possibilities curve that shows maximum production of 9 million trucks or 3 million computers.

Based on the graphs, which of the following statements is true?

Debra has an absolute advantage in the production of computers.
Debra has an absolute advantage in the production of trucks.
Debra has an absolute advantage in the production of computers.
Mike has a comparative advantage in the production of computers.

Answer 1

Answer:

Mike has a comparative advantage in the production of computers.

Explanation:

Mike's opportunity cost of producing trucks instead of computers = 10 / 10 = 1.

Mike's opportunity cost of producing computers instead of trucks is 10 / 10 = 1.

Debra's opportunity cost of producing trucks instead of computers = 3 / 9 = 0.333.

Debra's opportunity cost of producing computers instead of trucks = 9 / 3 = 3.

Mike's opportunity cost of producing computers instead of trucks is 1, while Debra's is 3. Therefore, Mike has a comparative advantage in the production of computers.