Understanding Opportunity Cost in Production
What is Esther's and Ben's opportunity cost of producing a milkshake?
A. Ben; Esther
B. Ben; Ben
C. Esther, Ben
D. Esther, Esther
Answer:
Esther's opportunity cost of producing 1 milkshake is ice cream sundaes. Ben's opportunity cost of producing 1 milkshake is also ice cream sundaes.
Explanation:
Esther's opportunity cost of producing 1 milkshake is ice cream sundaes. Ben's opportunity cost of producing 1 milkshake is also ice cream sundaes.
To calculate the opportunity cost, we need to compare the production rates of milkshakes and ice cream sundaes for each person. Esther can produce 19 milkshakes or 76 ice cream sundaes in an hour. So, her opportunity cost of producing 1 milkshake is 76/19 = 4 ice cream sundaes. On the other hand, Ben can produce 6 milkshakes or 6 ice cream sundaes in an hour. Therefore, his opportunity cost of producing 1 milkshake is also 6/6 = 1 ice cream sundae.
From these calculations, we can determine that Esther's opportunity cost of producing a milkshake is higher than Ben's. This means that Esther has a comparative advantage in producing ice cream sundaes, while Ben has a comparative advantage in producing milkshakes. Considering absolute advantage, we need to compare the total production quantities. Esther can produce more milkshakes and ice cream sundaes than Ben in an hour. Therefore, Esther has an absolute advantage in both goods.
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