It takes Anne 3 hours to make a pie and 4 hours to make a shirt. It takes Mary 2 hours to make a pie and 5 hours to make a shirt. Anne should specialize in making shirts and Mary should specialize in making pies, and they should trade.

Question

Quizplus · Accepted Answer

According to the principle of comparative advantage, each person should specialize in the activity for which they have a lower opportunity cost. Anne has a lower opportunity cost in making shirts because she gives up 3/4 of a pie for each shirt (since she can make a pie in 3 hours and a shirt in 4 hours), whereas Mary gives up 2.5 pies for each shirt (since she can make a pie in 2 hours and a shirt in 5 hours). Conversely, Mary has a lower opportunity cost in making pies because she gives up 0.4 of a shirt for each pie (since she can make a shirt in 5 hours and a pie in 2 hours), whereas Anne gives up 0.75 of a shirt for each pie (since she can make a shirt in 4 hours and a pie in 3 hours). Therefore, Anne should specialize in making shirts and Mary in making pies, and they should trade to maximize their combined output.

It Takes Anne 3 Hours to Make a Pie and 4