Question

- 4. Given the productivity numbers below for Roberto and Maria, if they get married and specialize according to their comparative advantages, who should specialize in home production and who should specialize in household production? Calculate your answer based on the example that they are seeking $24 of earned income. SHOW YOUR WORK AND EXPLAIN YOUR RESPONSE using both the relative productivity inequality and the opportunity cost approach. . Roberto: w $12; h $6 . Maria: w- $3; h-$6

Answer 1

Solution:

It seems like 'w' here refers to the wage rate and thus corresponds to the household production, while 'h' is for the home production. Then, according to what is given, Roberto's productivity levels are either household production worth $12, or home production worth $6. And that for Maria re either household production worth of $3 or home production worth of $6.

Comparative advantage:

Then using the above information, we can find the required opportunity costs as follows:

For Roberto, if he engages in household production, earning sum worth $12, he gives up $6 worth home production. Thus, for every dollar he earns through household production, he gives up (6/12=) 1/2 dollar worth had he been under home production. So, for Roberto, the opportunity cost of household production = $(1/2) worth home production.

Similarly, for Maria, if she engages in household production, earning sum worth $3, she gives up $6 worth home production. Thus, for every dollar she earns through household production, he gives up (6/3=) 2 dollars worth had she been under home production. So, for Mario, the opportunity cost of household production = $2 worth home production.

Clearly, opportunity cost of household production is lower for Roberto as compared to Maria (1/2 < 2), so we can say that Roberto has a comparative advantage in household production, implying Roberto specializes in household production, while Maria has a comparative advantage in home production, implying Maria specializes in home production.