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Homework answers / question archive / The below figure shows the production possibilities frontiers (PPFs) of two persons, Balin and Fundin

The below figure shows the production possibilities frontiers (PPFs) of two persons, Balin and Fundin

Economics

The below figure shows the production possibilities frontiers (PPFs) of two persons, Balin and Fundin. Which of the following statements is true? Good 1 10 9 8 7 Balin's PPF Fundin's PPF 1 2 3 4 5 6 7 8 9 Good 2 Balin has a comparative advantage in the production of Good 1, whereas Fundin has a comparative advantage in the production of Good 2 Fundin has a comparative advantage in the production of both goods, Balin has a comparative advantage in the production of Good 2 whereas Fundin has a comparative advantage in the production of Good Balin has a comparative advantage in the production of both goods

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A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Balin:

8 units of good 2 = 9 units of good 1

1 unit of good 2 = 9/8 = 1.125 units of good 1

1 unit of good 1 = 8/9 = 0.88 units of good 2

Opportunity cost of producing good 2 is 1.125 units of good 1 and opportunity cost of producing good 1 is 0.88 units of good 2.

Fundin;

7 units of good 2 = 5 units of good 1

1 unit of good 2 = 5/7 = 0.71 units of good 1

1 unit of good 1 = 7/5 = 1.4 units of good 2

Opportunity cost of producing good 2 is 0.71 units of good 1 and opportunity cost of producing good 1 is 1.4 units of good 2.

Bralin has lower opportunity cost in the production of good 1 while Fundin has lower opportunity cost in the production of good 2.

Therefore, Bralin has comparative advantage in the production of good 1, whereas Fundin has comparative advantage in the production of good 2.