This Question lot 60123 0 complete In one hour Sue can produ

This Question: lot 60123 (0 complete) In one hour, Sue can produce 70 caps or 21 jackets and Tessa can produce 50 caps or 125 jackets. has a comparative advantage in producing jackets. should specialize in producing caps. O A. Tessa; Sue B. Sue: Tessa O C. Sue; Sue D. Tessa; Tessa

Solution

Option (A).

We compute Opportunity cost (OC) as follows.

For Sue,

OC of Jacket = 70/21 = 3.33 Caps

OC of Cap = 21/70 = 0.3 Jacket

For Teresa,

OC of Jacket = 50/125 = 0.4 Caps

OC of Cap = 125/50 = 2.5 Jackets

Since Teresa can produce Jacket at a lower OC than Sue can, Teresa has comparative advantage in Jacket. Accordingly, Sue has comparative advantage in, and should produce, Caps.