Thursday 15 April

In a day, Willem can make 4 chairs or 2 tables; his neighbor Dana in a day can make 3 chairs or 3 tables.

  1. Who of these two has comparative advantage in making tables?

    2. Pretty obvious -- Dana, she can make three in the time it takes Willem to make two. More formally, if you check the opportunity costs, Dana's opportunity cost of a table is one chair not made; whereas Willem's is 2 chairs not made, so Dana has comparative advantage in making tables, she is the low opportunity cost producer.

  2. If they both work six day weeks, and every table has to be sold with two chairs, if they work separately, how many (1 table 2 chair) sets can each make, and the total for the two of them?

    3. Willem can make one set [one table and two chairs] a day, so he can make 6 sets in a week. Dana can make three tables in a day, six chairs in two days, so three sets in three days, six sets in the six day week. Between them, they can make 12 sets.

  3. If they specialize a little, how many sets can they make together in a week?

Suppose Dana makes just tables, which she is better at. In six days she makes 18. They require 36 chairs, which it takes Willem 36/4 = 9 days to make. That is longer than a week. So let Willem just make chairs: he produces 4 x 6 = 24 in the week, and Dana can make the needed 12 tables in 4 days. That leaves her two days in which she can make 2 more tables and 4 more chairs, for a total of 14 sets. Willem is fully specialized in chairs, Dana is partly specialized in tables [she makes more of them than before, but she still makes some chairs].