DF1-Economics - taking away time to make fries(or burgers...

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You have an absolute advantage in the production of a good if you are able to produce it using fewer resources. For example, Fast food Company who uses pre-made patties to make hamburgers opposed to having them made with real meat by hand. Time is a crucial when having an absolute advantage because it is better to have a product that uses less time. A comparative advantage involves the comparison of two producers and the trades that are made to produce a good. Let’s say it takes McDonald’s 10 min to make 1 batch of burgers and 30 min to make fries. Another company Wendy’s takes 20 min to make 1 batch of burgers and 40 min to make fries. The opportunity cost in this example is time to make burgers (or fries) is
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Unformatted text preview: taking away time to make fries (or burgers). For McDonald’s the opportunity cost to make 1 batch of burgers 1/3 batch of fries and the opportunity cost to make 1 batch of fries is 3 batches of burgers. For Wendy’s the opportunity cost is 1 batch of burgers is ½ batch of fries and the opportunity cost to make 1 batch of fries is 2 batches of burgers. In the example of McDonald’s and Wendy’s the trade between the two companies would not make sense because they are competing producers. The advantage of goods for which you have an absolute advantage is you can spend more time (increase inputs) into the good which you have the advantage and trade with someone who is doing the same....
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This note was uploaded on 02/05/2012 for the course ECONOMICS 101 taught by Professor Dr.edmondson during the Spring '11 term at Thomas Edison State.

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