Nick and Beth run a catering business in which they have two major tasks: getting new clients and preparing food for events and parties. It takes Nick 8 hours to prepare food for an event and 4 hours of effort to get each new client. For Beth, it takes 12 hours to prepare food for an event and 3 hours to get a new client.
1. Who has an absolute advantage in food preparation?
2. Who has a comparative advantage in food preparation?
Suppose that initially, Nick and Beth are both splitting both tasks for a large number of events. Then they decide to start shifting some work according to the principle of comparative advantage. In particular, the person with the comparative advantage in food preparation will take over preparing food for one more event, and the other person will use the freed-up time to get more clients. As a result, the total number of events for which food is prepared will remain unchanged, but the number of new clients will increase by __?__.
The second part threw me off and I got confused. I put up the entire problem just to see if i answered it correctly or not to see whether that was what threw me off or not. Thanks in advance! :)
Answers & Comments
Verified answer
1. Nick
2. Nick
Second part
For Nick, every time he prepares food, he could have gotten 2 clients.
As for Beth, every she prepares food, she could have gotten 4 clients.
Therefore, Nick has a comparative and absolute advantage in preparing food since he has opportunity cost is lower and he can prepare food in less time.
However, Beth has a absolute advantage in getting new clients because it only takes her 3 hours instead of 4.
So for your question "As a result, the total number of events for food is prepared will remain unchanged, but the number of new clients will increase by 2.
Nick 8 / 4 = 2 clients
Beth 12 / 3 = 4 clients
The difference is 2 clients for 1 event.
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Nick and Beth run a catering business in which they have two major tasks: getting new clients and preparing food for events and parties. It takes Nick 8 hours to prepare food for an event and 4 hours of effort to get each new client. For Beth, it takes 12 hours to prepare food for an event and 3...
Nick has the absolute advantage in food preparation, since he can prepare more food in less time.
Nick also has a comparative advantage in food preparation, since the opportunity cost is lower (for Nick, the opportunity cost of 1 food preparation is 2 new clients, while for Beth the opportunity cost of 1 food preparation is 4 new clients).
If Nick takes over 1 more food preparation, he will add 8 hours to that task, during which time he will have to give up 2 new clients. Beth will free up 12 hours by giving this task to Nick, and during those 12 hours Beth can get 4 new clients. Beth gains 4 clients, Nick loses 2 clients, so the net result is a gain of 2 new clients.
absolute advantage means 100% cost difference in each other contries in foriegn trade. theory of absolute advantage is explained by adamsmith. and theory of comparative advantage is by recordo.
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Possibly yeah