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    Absolute and Comparative Advantage among coworkers

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    As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 4 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both products? Should these two planners be self-sufficient (each producing statements and answering phones) or specialize?

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    Solution Preview

    Francis has an absolute advantage on the production of both financial statements and in answering phones because in 1 hour, he can do more of both. They are both using the same resources, one hour of the time.

    Now for the second question we have to determine if any one individual has a comparative advantage.

    Every time Phil does 1 financial statement, he doesn't answer 8 phone calls. ie. The opportunity cost of 1 financial statement for Phi is 8 phone calls.

    Every time Francis does 1 ...

    Solution Summary

    The answer discusses the efficient behaviour of two workers in a case in which one worker is better at doing everything than the other.

    $2.19