Muriel and Edgar each have 30 labor hours available per week to knit hats and scarves. In 30 hours, Muriel can knit 6 hats or 4 scarves. In the same amount of time, Edgar can knit 3 hats or 5 scarves. a. Draw the production possibilities frontiers for Muriel and Edgar, with scarves on the x-axis. b. Who has the absolute advantage in scarf production? In hat production? c. Find Muriel’s and Edgar’s opportunity cost of producing hats in terms of scarves. Who has a comparative advantage?
Muriel and Edgar each have 30 labor hours available per week to knit hats and scarves. In 30 hours, Muriel can knit 6 hats or 4 scarves. In the same amount of time, Edgar can knit 3 hats or 5 scarves. a. Draw the production possibilities frontiers for Muriel and Edgar, with scarves on the x-axis. b. Who has the absolute advantage in scarf production? In hat production? c. Find Muriel’s and Edgar’s opportunity cost of producing hats in terms of scarves. Who has a comparative advantage?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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20. Muriel and Edgar each have 30 labor hours available per week to knit hats and
scarves. In 30 hours, Muriel can knit 6 hats or 4 scarves. In the same amount of time,
Edgar can knit 3 hats or 5 scarves.
a. Draw the production possibilities frontiers for Muriel and Edgar, with scarves
on the x-axis.
b. Who has the absolute advantage in scarf production? In hat production?
c. Find Muriel’s and Edgar’s opportunity cost of producing hats in terms of
scarves. Who has a comparative advantage?
d. Find Muriel’s and Edgar’s opportunity cost of producing scarves in terms of
hats. Who has a comparative advantage?
e. Muriel and Edgar are now aware of their comparative advantages and decide
to trade. For what price of hats (in terms of scarves) will trade occur?
Explain.
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