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Recitation 3 - ECO 108 Spring 2008 Daniel Wolman Recitation...

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ECO 108 Spring 2008 Daniel Wolman Recitation 3 Write the answer to your group question neatly on paper with all participating group member names and IDs on top. 1. Kristin and Anna live in the beach town of Santa Monica. They own a small business in which they make wristbands and potholders and sell them to people on the beach. Kristen can make 15 wristbands per hour, but only 3 potholders. Anna is a bit slower and can make only 12 wristbands or 2 potholders in an hour. Kirsten Anna Wristbands 15 12 Potholders 3 2 (a) For Kristen and for Anna what is the opportunity cost of a potholder? Who has a comparative advantage in the production of potholders? Explain. (b) Who has a comparative advantage in the production of wristbands? Explain. (c) Assume that Kristin works 20 hours per week in the business. If Kristen were in business on her own, graph the possible combinations of potholders and wristbands that she could produce in a week. Do the same for Anna. Put wristbands on the x axis. (d) If Kristen devoted half of her time (10 out of 20 hours) to wristbands and half of her time to potholders, how many of each would she produce in a week? If Anna did the same, how many of each would
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