Answer to Question #293195 in Microeconomics for raksha

Question

Kristen and Anna live in the beach town of Santa Monica.

They own a small business in which they make wristbands

and pot holders and sell them to people on the beach. As

shown in the table on the following page, Kristen can make

15 wristbands per hour but only 3 pot holders. Anna is a bit

slower and can make only 12 wristbands or 2 pot holders in

an hour.

Answer 1

Kristen and Anna live in the beach town of Santa Monica. They own a small business in which they make wristbands and pot holders and sell them to people on the beach. As shown in the table on the following page, Kristen can make 15 wristbands per hour but only 3 pot holders. Anna is a bit slower and can make only 12 wristbands or 2 pot holders in an hour. OUTPUT PER HOUR WRISTBANDS POT HOLDERS Kristen 15 3 Anna 12 2 For Kristen and for Anna, what is the opportunity cost of a pot holder? Who has a comparative advantage in the production of pot holders?

Opportunity cost$_{Kristen}$ =$\frac{15}{3}=5wristbands\\$

Opportunity cost$_{Anna}=\frac{12}{3}=4wristbands$

A producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost.

This Kristen has a lower opportunity cost in the production of potholders

Therefore Kristen has a comparative advantage in the production of potholders