Analyzing opportunity costs based on billing rates, Hubert has a slight comparative advantage in building models with a cost of $425 per model compared to Kate's $500 per model, due to his lower billing rate offsetting his slightly higher opportunity cost. However, other factors like skill and quality should also be considered.
Calculating Kate's Opportunity Cost:
Lost Billing from Model Building: Multiply Kate's model building rate (10 models/hour) by her billing rate for other activities ($500/hour) to find the revenue she sacrifices per hour spent building models: 10 models/hour * $500/hour = $5000/hour.
Time Spent Building Models: Divide the total number of models needed (50) by Kate's model building rate: 50 models / 10 models/hour = 5 hours.
Total Opportunity Cost: Multiply the lost billing per hour by the time spent: $5000/hour * 5 hours = $25,000.
Opportunity Cost per Model: Divide the total opportunity cost by the number of models built: $25,000 / 50 models = $500 per model.
Comparing Costs:
Hubert's opportunity cost is 20% higher than Kate's, meaning it's approximately $600 per model ($500 * 1.2). However, his lower billing rate slightly offsets this disadvantage. Let's assume his billing rate for other activities is 85% of Kate's, or $425 per hour.
Following the same calculation as for Kate, Hubert's opportunity cost per model would be:
Lost Billing per Hour: 10 models/hour * $425/hour = $4250/hour.
Time Spent: 50 models / 10 models/hour = 5 hours.
Total Opportunity Cost: $4250/hour * 5 hours = $21,250.
Opportunity Cost per Model: $21,250 / 50 models = $425 per model.
Conclusion:
While Hubert's opportunity cost per model initially appears higher, his lower billing rate slightly mitigates it, bringing it down to $425 per model compared to Kate's $500 per model. Therefore, Hubert has a comparative advantage in building models, as his opportunity cost is slightly lower.