Anita can bake 10 cakes in a day, but has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John makes equally delicious cakes and cookies but can only make 7 cakes or 100 cookies in a day. Based on this information, which of the following statements is TRUE?
A) Anita has the comparative advantage in the production of cakes.
B) John has the comparative advantage in the production of cakes.
C) John has the absolute advantage in the production of cookies.
D) Anita has the comparative advantage in the production of both cakes and cookies.

Question

Quizplus · Accepted Answer

Comparative advantage is based on opportunity cost, which is the amount of one good that must be given up to produce one unit of another good. Anita's opportunity cost of producing cakes is 20 cookies (200 cookies/10 cakes) while John's opportunity cost is 14.29 cookies (100 cookies/7 cakes). Therefore, John has the comparative advantage in producing cakes. We cannot determine absolute advantage from the given information, so C and D are false. A is false because Anita's opportunity cost of producing cakes is higher than John's.

Anita Can Bake 10 Cakes in a Day, but Has