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Homework answers / question archive / _   Jake and Vicky are partners at a management consulting firm

_   Jake and Vicky are partners at a management consulting firm

Economics


_   Jake and Vicky are partners at a management consulting firm. They  are   trying determine which of them has a comparative advantage in ing4.  
the 100 slides required for a sales pitch to a prospective client.  
(  
Jake can create 25 slides per hour. For other activities, he can bill clients $500 per hour. Jake's opportunity cost of creating slides is lir per slide. 
Vicky's opportunity cost of creating slides is 25% higher than Jake's. However, as the junior partner, her billing rate is 20% lower. Based on all of these facts, 1? has a comparative advantage in creating slides. 
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Jake's opportunity cost of creating slide= 500/ 25

= 20 per slide.

 

Vicky's opportunity cost is 25% higher than Jake's.

Vicky's opportunity cost= 20+ (20* 25%)

= 25 per slide.

 

Since, Jake's opportunity cost is lower than Vicky's (20< 25). So, Jake has comparative advantage in creating slides.

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