The following figures illustrate the production possibilitie

The following figures illustrate the production possibilities available to Kate and Sarah with 8 hours of labor in their bakery. Answer the following question according to these figures.

Solution

For Kate

Opportunity cost of producing 1 loaf of bread = 8/4 = 2 units of cakes

Opportunity cost of Producing 1 unit of cake = 4/8=.5 loaf of bread

For Sarah

Opportunity cost of Producing 1 loaf of bread = 9/12 = .75 cakes

Opportunity cost of producing 1 unit of cake = 12/9 = 1.33 loaf of bread

Thus,

Kate has Comparative advantage in producing cakes

Sarah has comparative advantage in producing breads