Maria and Jack spend their free time making chairs and table

Maria and Jack spend their free time making chairs and tables. Maria can make 1 table in 3 hours, and 1 chair in 2 hours, whereas Jack can make 1 table in 7 hours, and 1 chair in 5 hours. Which of the following exchanges would be beneficial for both of them?

a. Jack gives Maria 5 tables in exchange for 3 chairs
b. Jack gives Maria 1 chair in exchange for 2 tables

c. Jack gives Maria 7 chairs in exchange for 10 tables

d. Jack gives Maria 7 tables in exchange for 10 chairs

Solution

Let the time be 210 hours. Then Maria can make 70 tables or 105 chairs in this time. whereas Jack
can make 30 tables or 42 chairs in a total of 210 hours. The opportunity cost of 1 table for Maria is
105/70 = 1.5 chairs while it is 42/30 or 1.4 chairs for Jack. Maria should produce chairs that she is
having a comparative advantage in while Jack should produce tables. The trade price lies between
1.5 chairs and 1.4 chairs for 1 table.
When Jack gives Maria 7 tables in exchange for 10 chairs, the trade price is 1.42 chairs for 1 table so
Option D is correct.