Given the production possibility tables for First and Second Bakeries presented below,what must be true?
A) First Bakery has a comparative advantage in the production of both goods.
B) Second Bakery has a comparative advantage in the production of pies.
C) First Bakery has a comparative advantage in the production of pies.
D) Neither bakery has a comparative advantage.
E) Neither bakery has an absolute advantage.

Question

Given the production possibility tables for First and Second Bakeries presented below,what must be true? 
A) First Bakery has a comparative advantage in the production of both goods. 
B) Second Bakery has a comparative advantage in the production of pies. 
C) First Bakery has a comparative advantage in the production of pies. 
D) Neither bakery has a comparative advantage. 
E) Neither bakery has an absolute advantage.

Quizplus · Accepted Answer

The concept of comparative advantage is based on the opportunity cost of producing each good. In this case, the opportunity cost of producing one pie at First Bakery is 2 cookies, while the opportunity cost of producing one pie at Second Bakery is 3 cookies. This means that First Bakery has a lower opportunity cost of producing pies and therefore has a comparative advantage in producing them. Second Bakery has a higher opportunity cost of producing pies, so it would make more sense for them to focus on producing cookies, which they have a lower opportunity cost for.

Given the Production Possibility Tables for First and Second Bakeries