Question

Mary and Paul run a bakery. Consider the following information about Mary and Paul's production possibilities: Mary cakes Mary pies Paul cakes Paul pies per week per week per week per week 0 20 0 12 9 15 6 9 18 10 12 6 27 5 18 3 36 0 24 0 All figures refer to the different combinations of cakes and pies that can be baked in a week. Based on the information given__has an absolute advantage in baking pie and has a comparative advantage in baking pie. Mary: Paul ОО Paul: Mary Mary: Mary Paul: Paul

Answer 1

Both Mary and Paul has same set of resources.

Using all its resources in production of cakes, Mary can produce a maximum of 36 cakes per week while Paul can produce a maximum of 24 cakes per week.

Using all its resources in production of pies, Mary can produce a maximum of 20 pies per week while Paul can produce a maximum of 12 pies per week.

The opportunity cost of producing 1 cake for Mary is (20/36) 0.55 pies and the opportunity cost of producing 1 pie for Mary is (36/20) 1.8 cakes.

The opportunity cost of producing 1 cake for Paul is (12/24) 0.50 pies and the opportunity cost of producing 1 pie for Paul is (24/12) 2 cakes.

A person has absolute advantage in production of that good which it can produce in greater quantity that other using the same set of resources.

It can be seen that using same set of resources, Mary can produce greater quantity of pies than Paul

Thus, Mary has absolute advantage in baking pie.

A person has comparative advantage in production of that good which it can produce at lower opportunity cost.

Mary can produce pie at lower opportunity cost than Paul.

So, Mary has comparative advantage in baking pie.

Thus,

Based on the information given, Mary has an absolute advantage in baking pie and Mary has comparative advantage in baking pie.

Hence, the correct answer is the option (3) [Mary, Mary].