E202Exam1.8

E202Exam1.8 - Chapter 2 3. (16 pts) Nancy and Bill are auto...

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Chapter 2 3. (16 pts) Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. Determine whether anyone has an absolute advantage at either task and, for each task, determine who has a comparative advantage. Be sure to explain your reasoning. Answer : In time it takes Nancy to replace a set of brakes she can complete one-half of a clutch replacement. So her opportunity cost of replacing a set of brakes is one-half of a clutch replacement. In the time it takes Bill to replace a set of brakes, he can complete one-third of a clutch replacement. So his opportunity cost of replacing a set of brakes is one-third of a clutch replacement. Because Bill’s opportunity cost of replacing a set of brakes is lower than Nancy’s, Bill has a comparative advantage in replacing brakes. That means that Nancy has a comparative advantage in replacing clutches. Nancy also has an absolute advantage over Bill in replacing
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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