Bette and Jamal are partners at a management consulting firm. They are trying to
ID: 1200738 • Letter: B
Question
Bette and Jamal are partners at a management consulting firm. They are trying to determine which of them has a comparative advantage in creating the 50 slides required for a sales pitch to a prospective client. Bette can create 15 slides per hour. For other activities, she can bill clients $750 per hour. Bette's opportunity cost of creating slides is$---- per slide. Jamal's opportunity cost of creating slides is 30% lower than Bette's. However, as the senior partner, his billing rate is 25% higher. Based on all of these facts,----- has a comparative advantage in creating slides.
Explanation / Answer
Given that Bitty can create 15 slides per hour and for each hour she spends in makig slides, she gives up $750. For one slide, Bette's opportunity cost of creating slides is 750/15 or $50 per slide. In making 50 slides, her opportunity cost is $2,500.
Jamal's opportunity cost of creating slides is 30% lower than Bette's. That is, his opportunity cost is $35 per slide.
Jamal's billing rate is 25% higher, that is, $937.50 per hour. That is, he can make around 26 slides in 1 hour.
Based on all of these facts, Jamal has a comparative advantage in creating slides.
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