Two friends Rachel and Joey enjoy baking bread and making ap

Two friends, Rachel and Joey, enjoy baking bread and making apple pie. rachel takes 2 hours to bake a loaf of bread and 1 hour to make a pie. Joey takes 4 hours to bake a loaf of bread and 4 hours to make a pie. please calculate to opportunity cost of baking bread for both rachel and joey. (teacher recommendsusing 4 hour blocks)

Who has the absolute advantage in baking bread?

Who has the comparative advantage?

Who should specialize in bread?

Who should specialize in pie?

Solution

Opportunity cost of baking bread for Rachel = 2 pie (2/1)

Opportunity cost of baking bread for Joey = 1 pie (4/4)

* Rachel has absolute advantage in baking bread as he takes less time.

* Joey has comparative advantage in baking bread as his opportunity cost is less than Rachel\'s.

* Joey should specialize in bread as his opportunity cost is less than Rachel\'s.

* Rachel should specialize in making pie as his opportunity cost (1/2 bread) is less than Rachel\'s (1 bread) in making pie.