Question

Carmen wants to open her own coffee shop. She has narrowed down a list of wholesale retailers and their cost per pound of coffee beans. Whole Sale Company Cost per lb. Café con Leche $8. 50 Beans Brothers $7. 50 Colombian Co. $11. 25 Turkish Coffee Company $6. 25 Which company has the comparative advantage in cost per pound of coffee? Café con Leche Beans Brothers Colombian Co. Turkish Coffee Company.

Answer 1

The company with the comparative advantage in the production of coffee is Turkish Coffee Company.

What is comparative advantage?

A shop has comparative advantage in production of a good or service if it produces at a lower opportunity cost when compared to other shops. Opportunity cost is the total resources given up when a good or service is produced. A shop should specialise in the production of goods for which it has a  comparative advantage.

The firm with the lowest cost is Turkish Coffee Company. Thus, this shop has a comparative advantage in the production of coffee.

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