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16 April, 17:02

Martha can produce 70 quilts or 140 batches of chocolate chip cookies in a month. Jane can produce 8 quilts or 24 batches of chocolate chip cookies in a month. Distinguish between comparative advantage and absolute advantage.

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  1. 16 April, 17:13
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    Martha can produce 70 quilts or 140 batches of chocolate chip cookies:

    Opportunity cost of producing a quilt = (140 : 70)

    = 2 batches of chocolate chip cookies

    Opportunity cost of producing a batch of chocolate chip cookie = (70 : 140)

    = 0.5 quilts

    Jane can produce 8 quilts or 24 batches of chocolate chip cookies:

    Opportunity cost of producing a quilt = (24 : 8)

    = 3 batches of chocolate chip cookies

    Opportunity cost of producing a batch of chocolate chip cookie = (8 : 24)

    = 0.33 quilts

    Therefore, the comparative advantage is as follows:

    Martha has a comparative advantage in producing quilt because it has a lower opportunity cost of producing quilt than Jane.

    Jane has a comparative advantage in producing chocolate chip cookies because it has a lower opportunity cost of producing chocolate chip cookies than Martha.

    Absolute advantage:

    Martha has an absolute advantage in producing both the commodities because she can produce more amount of both the goods from the same level of resources as compared to Jane.
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