Question

Suppose that Costa Rica is able to produce 50,000 pounds of coffee or 10,000 medical devices per day; Vietnam is able to produce 40,000 pounds of coffee or 5,000 medical devices per day. Which statement is TRUE?

A. Costa Rica has an absolute advantage in medical device production, while Vietnam has an absolute advantage in coffee production.
B. Costa Rica has a comparative advantage in the production of both coffee and medical devices.
C. Costa Rica has a comparative advantage in coffee production, while Vietnam has a comparative advantage in the production of medical devices.
D. Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has a comparative advantage in coffee production.

Answer 1

D) Costa Rica has a comparative advantage in the production of medical devices, while Vietnam has a comparative advantage in coffee production.

Step-by-step explanation:

A comparative advantage means producing more goods using the same amount of resources, or producing the same amount of goods using less resources.

In this case, Costa Rica produces 1 medical device for every 5 pounds of coffee. While Vietnam produces 1 medical device for every 8 pounds of coffee. Therefore, Costa Rica has a comparative advantage in the production of medical devices versus pounds of coffee.

On the other hand, Vietnam produces 1 pound of coffee for every 1/8 (12.5%) of a medical device. While Costa Rica produces 1 pound of coffee for every 1/5 (20%) of a medical device. therefore, Vietnam has a comparative advantage in the production of coffee versus medical devices.