Question

emily owns an ice cream parlor. in an hour she can produce 10 milkshakes or 30 ice cream sundaes. ben also owns an ice cream parlor.in an hour he can make 8 milkshakes or 8 ice cream sundaes. what is emily’s opportunity cost of producing 1 milkshake and what is ben’s opportunity cost of producing 1 milkshake? who has the comparative advantage?

Answer 1

Emily’s opportunity cost of producing 1 milkshake is 3 ice cream sundaes and Ben’s opportunity cost of producing 1 milkshake is 1 ice cream sundae.

• Opportunity cost simply means what one will forgo in order to get something else. In this case, Emily’s opportunity cost of producing 1 milkshake is 3 ice cream sundaes and Ben’s opportunity cost of producing 1 milkshake is 1 ice cream sundae.

• Also, the comparative advantage refers to the ability of an economy to produce goods at a lower opportunity cost when it's compared to the others. In this case, Emily has a comparative advantage, in the production of ice cream sundaes while Ben has a comparative advantage in the production of milkshakes.

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