Apla Student Question xleAph. Student Course Hone Home Grades Personalized Revie

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Apla Student Question xleAph. Student Course Hone Home Grades Personalized ReviewsDiscussion Course Materials ome Tools of Economic Analysis raded Assignment 1 Read Chapter Back to As reme Due Monday 12.11.17 at 01:45 Attempts Keep the Highest: /2 4. Comparative advantage Beth and Daesun are partners at an architecture firm. They are trying to determine which of them has a comparative advantage in building the 25 models required for a sales pitch to a prospective dient. Beth can build 20 models per hour. For other activities, she can bill dients $400 per hour. Beth's opportunity cost of building models is per model. Daesun's opportunty cost of blding models is 35% higher than Beers. However, as the jnor prtner, his bling rate a 30lower. Baied en these facts, has a comoaraove advartage in building models. o

Explanation / Answer

Beth can build 20 models in an hour or can bill clients at $400 per hour. So by building models, she is giving up billing, where she can earn $400. Basically, Beth is giving up $400 for building 20 models.

So, the opportunity cost of building models is $20 per model.

On the other hand, Daesun can make 35% more models than Beth in an hour. So he is making 20 + 35% i.e. 7 more models that are 27 models per hour.  

But, his billing speed is 30% lesser, that is 30% of 400. So Daesun can bill only (400 - 120) $280 in an hour. Daesun's per model cost is only $10.37.

Taking all this into account Daesun has a comparative advantage in building models.

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