Question

Felix and Eleanor are partners at an architecture firm. They are trying to determine which of them has a comparative advantage in building the 50 models required for a sales pitch to a prospective client. Felix can build 10 models per hour. For other activities, he can bill clients $500 per hour. Fellix's opportunity cost of building models is ______ per model. Eleanor's opportunity cost of building models is 20% higher than Felib's. However, as the funior parther, her buling rate is 15% lower, Based on all of these facts ________ has a comparative advantage in building models.

Answer 1

Felix's opportunity cost per model is $50 while Eleanor's is $60. Despite Eleanor's lower billing rate, it doesn't affect the calculation of her opportunity cost in building models. Thus, Felix has a comparative advantage in building models.

Step-by-step explanation:

Felix's opportunity cost of building models is the amount he could earn if he was billing clients instead of building models. Since Felix can bill clients $500 per hour and he can build 10 models per hour, his opportunity cost per model is $50 (which is $500 per hour divided by 10 models per hour). Eleanor's opportunity cost is 20% higher than Felix's, making it $60 per model (which is $50 plus an additional 20%).

Even though her billing rate is 15% lower than Felix's, this does not affect the calculation of her opportunity cost for building models since the comparison is based on Felix's opportunity cost per model. Therefore, since Felix's opportunity cost per model is lower, Felix has a comparative advantage in building models.