Who has a comparative advantage in making bread

Reference no: EM131301182

Two friends, Rachel and Joey, enjoy baking bread and making apple pies. Rachel takes 2 hours to bake a loaf of bread and 1 hour to make a pie. Joey takes 4 hours to bake a loaf of bread and 4 hours to make a pie.

a. What are Joey's and Rachel's opportunity costs of baking bread?

b. Who has the absolute advantage in making bread?

c. Who has a comparative advantage in making bread?

d. If Joey and Rachel decide to specialize in order to increase their joint production, what should Joey produce? What should Rachel produce?

e. The price of a loaf of bread can be expressed in terms of an apple pie. If Joey and Rachel are specializing in production and decide to trade with each other, what range of ratios of bread and apple pie would allow both parties to benefit from trade?

Reference no: EM131301182

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