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    Absolute and comparative advantage

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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 2 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? Be sure to show your work

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    No. of statements Phone Calls/hour
    Phil 1 8
    Francis 2 10

    We observe that Francis can produce more number of statement in an hour than Phil can produce in the same time. Francis can also answer more number of phone calls in an hour than Phil can answer in the same period. Clearly Francis has an absolute advantage in producing statements and answering phone calls.
    For ...

    Solution Summary

    Solution checks whether two planners should specialize or be self sufficient using absolute and comparative advantage concepts.