Below is a table of the output per hour of two different pro

Below is a table of the output per hour of two different products: clean diapers (produced at home) and loaves of bread (bought in the market) for two different people. What is the opportunity cost of producing a clean diaper for Hilde? For Rama? Who has an absolute advantage in changing diapers? In purchasing bread? What should each person specialize in? Why? Rama wants to improve himself by taking a continuing education course. Course A (Babies R Us) will raise his diaper cleaning skills from 9 diapers an hour to 11 diapers an hour. Course B (Wages R Us) will raise his salary enough to buy 14 loaves of bread with an hour of work (up from 10). Assuming that Rama know his marriage with Hilde will last forever which course should he take? Why? Suppose both Sang-Mi and Mohammad have 6 hours in which they can work. Sang-Mi can earn $3 an hour and Mohammad earns $8 an hour. Sang-Mi can clean a room in half an hour but it takes Mohammad 2 hours to clean a room in the house. C

Solution

1. a) The opportunity cost of producing a clean diaper for Hilde is = 20/12 = 1.67

The opportunity cost of producing a clean diaper for Rama is = 10/9 = 1.11

b) Hilde is having absolute advantage in production of both clean diapers and breads as her output is more in both the cases in comparison to Rama

c) Specialization depends upon opportunity costs and comparitive advantage. Now the chart of opportunity cost is

So according to table Hilde should go for bread and rama for diapers because of low opportunity cost

d) As per course A new table will be

As per course B new table will be

Rama should go for course A as the in either of the case the opportunity cost for bread is lowest for Hilde so Rama should try to decrease his opportunity cost for clean diaper by doing course A

Opportunity cost	Clean diapers	Loaves of bread
Hilde	1.67	0.6
Rama	1.11	0.9