Question

Ashley is an attorney and also an excellent typist. She can type 120 words per minute, but she charges attorney fees at $100 per hour. Benjamin would like some typing work but can only type 60 words per minute. According to the law of comparative advantage, Ashley should hire Benjamin to do her typing if and only if his wage rate is less than:__________

Answer 1

Answer:

$50 / hr

Explanation:

The law of comparative advantage states that an entity should be able to produce its goods and services at a lower opportunity cost compared others in the same line of business so as to have an edge in the market.

Looking at the scenario ,if Ashley can type 120 words in a minute and also earn $100 / hr as an attorney , the opportunity cost of settling for the attorney work is the income earned through typing.

The law states that goods and services should be produced at a cost lower to the opportunity cost. To Ashley , the cost of hiring Benjamin should not be more than half of her hourly income as Benjamin production rate is half of hers.