Thursday, September 1, 2016

Opportunity cost example

Q. You can wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. Your roommate can wash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. Who has the absolute advantage in laundry, and who has an absolute advantage in meal preparation? Who has the comparative advantage in laundry, and who has a comparative advantage in meal preparation?

I would have the absolute advantage in laundry in that I would wash, fold, and iron a basket of laundry in only two hours while my roommate would spend one hour more than I do, which means my ability to complete laundry requires to less resource (time). About the absolute advantage in meal preparation, my ability is the same as roommate’s. Considering time allocation, my roommate has the comparative advantage in meal preparation because the opportunity cost would be lower with the reason that I would finish another work in a less time. In addition, I think that the comparative advantage cannot be mentioned in laundry and the absolute advantage in meal preparation would remain the same.

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