Question

Paul is trying to decide if he is better off producing both shirts and handbags, or only one of them. he looks at his opportunity cost to help him make a decision. opportunity cost of a shirt opportunity cost of a handbag paul 1/2 of a handbag 2 shirts francisco 1 handbag 1 shirt based on what you have read, paul has the absolute advantage in the production of . has the comparative advantage in producing shirts. has the comparative advantage in producing handbags. based on the data, paul should .

Answer 1

Paul has an absolute advantage in producing both goods but should specialize in shirts as he has a comparative advantage in that area, whereas Francisco should specialize in handbags where he holds a comparative advantage.

Step-by-step explanation:

Paul and Francisco are assessing their production options based on opportunity cost to make decisions about specialization and trade. Paul has an opportunity cost of 1/2 of a handbag when he produces one shirt, and he has an opportunity cost of producing 2 shirts when he makes one handbag. Francisco has an opportunity cost of 1 handbag when producing a shirt, and an opportunity cost of 1 shirt when producing a handbag.

Paul has an absolute advantage in producing both shirts and handbags because he has a lower opportunity cost for producing a single unit of either good compared to Francisco. However, for comparative advantage, we look at the opportunity cost relative to each producer. Paul's opportunity cost of producing one shirt (1/2 handbag) is lower than Francisco's (1 handbag), so Paul has a comparative advantage in producing shirts. Conversely, Francisco's opportunity cost of producing a handbag (1 shirt) is lower than Paul's (2 shirts), which means Francisco has a comparative advantage in producing handbags. Based on the concept of comparative advantage, Paul should specialize in producing shirts while Francisco should specialize in producing handbags to maximize efficiency and potential gains from trade.

Answer 2

Paul should determine which product to specialize in by comparing his opportunity costs to Francisco's, focusing on where he holds a comparative advantage. Though the information provided does not support the claim of absolute advantage, Paul has the comparative advantage in shirt production, and Francisco has it in handbags, suggesting Paul should specialize in shirts.

Step-by-step explanation:

In determining whether to produce shirts, handbags, or both, Paul needs to consider his opportunity costs and which good he has a comparative advantage in producing. Paul has an absolute advantage in the production of both shirts and handbags because he can produce them at a lower cost than Francisco, which is not factually supported by the information provided. To decide which good to specialize in, Paul should compare his opportunity costs with Francisco's. Paul's opportunity cost for producing one shirt is 1/2 of a handbag, while Francisco's opportunity cost for one shirt is a whole handbag. Similarly, Paul's opportunity cost for one handbag is two shirts, whereas for Francisco, it's just one shirt.

The concept of comparative advantage implies that an individual has a comparatively lower opportunity cost in the production of a good relative to others. In this case, because Paul has a lower opportunity cost in producing shirts (1/2 handbag versus 1 handbag for Francisco), he has the comparative advantage in shirt production. Likewise, Francisco has a comparative advantage in producing handbags since his opportunity cost (1 shirt) is lower than Paul's (2 shirts). Based on these data, Paul should specialize in producing shirts where he has the comparative advantage and potentially trade with Francisco for handbags.