Al and Bill are the only workers in a small factory that makes geegaws and doodads.Al can make 5 geegaws per hour or 20 doodads per hour.Bill can make 3 geegaws per hour or 6 doodads per hour.Assuming that neither of them finds one task more odious than the other,
A)Bill has a comparative advantage in producing both geegaws and doodads.
B)Al has a comparative advantage in producing geegaws and Bill has a comparative advantage in producing doodads.
C)Al has a comparative advantage in producing both geegaws and doodads.
D)Bill has a comparative advantage in producing geegaws and Al has a comparative advantage in producing doodads.
E)both have a comparative advantage in producing doodads.

Question

Quizplus · Accepted Answer

To find out who has a comparative advantage in producing which product, we need to calculate their opportunity costs. Opportunity cost is the cost of one unit of a good in terms of the other good that must be given up.

For Al, the opportunity cost of producing one geegaw is 4 doodads (since he could have produced 20 doodads instead of 5 geegaws) and the opportunity cost of producing one doodad is 0.25 geegaws (since he could have produced 5 geegaws instead of 20 doodads).

For Bill, the opportunity cost of producing one geegaw is 2 doodads (since he could have produced 6 doodads instead of 3 geegaws) and the opportunity cost of producing one doodad is 0.5 geegaws (since he could have produced 2 geegaws instead of 6 doodads).

Comparing the opportunity costs, we can see that Bill has a lower opportunity cost for producing doodads and Al has a lower opportunity cost for producing geegaws. Therefore, Bill has a comparative advantage in producing doodads and Al has a comparative advantage in producing geegaws. The correct answer is D.

Al and Bill Are the Only Workers in a Small