Question

If they produce only hamburgers, in a single day Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. If they make milkshakes only, in a single day Sarah can produce 10 milkshakes, and Abe can produce 4 milkshakes. Therefore, _____ has an absolute advantage and a comparative advantage in making _____.

Answer 1

Sarah

Milkshakes

Step-by-step explanation:

A person has comparative advantage in production if it produces at a lower opportunity cost when compared with other people.

A person has an absolute advantage in the production of a good or service If she produces more quantity of a product when compared with other people.

Sarah produces more hamburgers and milkshakes when compared to Abe. Therefore she has absolute advantage in the production of both milkshakes and hamburgers.

The opportunity cost of Sarah in producing hamburgers and milkshakes are both 10/10 = 1

The opportunity cost of Abe producing hamburgers is 4 / 5 = 0.8 and for milkshakes it is 5/4 = 1.25.

Therefore, Sarah has a comparative advantage in the production of milkshakes because she has a lower opportunity cost (1) when compared with Abe (1.25)

I hope my answer helps you.