Question

Mitch and Terese are partners at a management consulting firm. They are trying to determine which of them has a comparative advantage in creating the 50 slides required for a sales pitch to a prospective client. Mitch can create 10 slides per hour. For other activities, he can bill clients $500 per hour. Mitch's opportunity cost of creating slides is_____per slide. Jamal's opportunity cost of creating slides is 30% lower than Bette's. However, as the senior partner, his billing rate is 25% higher. Based on all of these facts,_____has a comparative advantage in creating slides.

Answer 1

Answer and Explanation:

The computation of the Mitch opportunity cost of developing slides per slide is

= $500 ÷ 10 slides per hour

= $50

Now it is given that

Jamal opportunity cost is 30% lower than

And, the billing rate is 25% higher

So, in this case

Mitch opportunity cost is

= $50 - ($50 × 30%)

= $35

And, the billing rate is

= $500 + 25%

= $600

So per slide is

= $600 ÷ $35

= 17.14 slides

Based on the above calculation, Jamal has the opportunity cost in creating the slides