In one hour Sue can produce 50 caps or 10 jackets and Tessa

In one hour, Sue can produce 50 caps or 10 jackets and Tessa can produce 70 caps or 7 jackets. Sue\'s opportunity cost of producing a cap isjackets and Tessa\'s opportunity cost of producing a cap is jackets has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage, OA 0.2;0.10, Tessa; Tessa gains but Sue loses CB. 5.0; 10.0; Sue, both Sue and Tessa gain OC. 0.2;0.10; Tessa; both Sue and Tessa gain OD. 5.0;10.0; Tessa; Sue loses but Tessa gains OE. 0.2;0.10; Sue; Tessa gains but Sue loses

Solution

Sue\'s opportunity cost (OC) of 1 cap = 10/50 = 0.2 jackets

Tessa\'s OC of producing 1 cap = 7/70 = 0.1 jackets

Since Tess can make caps at a lower OC, Tessa has comparative advantage in caps.

When they specialize in producing the good in which each has a comparative advantage, both of them benefit from trade.

So correct option is (C).