Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 3

In one hour, John can assemble either 20 telephones or 10 answering machines. It takes Sally two hours to assemble either 20 telephones or 10 answering machines. Does either person have an absolute advantage in assembling either product What about a competitive advantage Explain (make sure you define absolute and competitive advantage and provide the opportunity costs for each person). Draw the combined production possibilities curve for the two people assuming that they work eight hours. Put answering machines on the horizontal axis.