Sarah and Her Boyfriend Mike Want to Save Some Money

question 359

Essay

Sarah and her boyfriend Mike want to save some money to pay for their wedding. So they decided to help people in the neighborhood by cleaning their garages and mowing lawns. Sarah takes 60 minutes to clean a garage and 80 minutes to mow a lawn. Mike takes 80 minutes to clean a garage and 80 minutes to mow a lawn. Sarah and Mike devote 10 hours per week each to these activities and get paid $25 for each garage they clean and $25 for each lawn they mow. Sarah says to Mike: "I have an absolute advantage in cleaning and we are equally productive in mowing. Therefore I should do both cleaning and mowing but you should only mow lawns." Mike disagrees. He thinks Sarah should specialize in cleaning garages and he should specialize in mowing lawns. Help Sarah and Mike to resolve their dispute.
a) Who has an absolute advantage in cleaning garages? In mowing lawns? Explain.
b) Draw Sarah's and Mike's production possibilities frontiers. What are each individual's opportunity costs?
c) Who has a comparative advantage in cleaning garages? In mowing lawns? Explain.
d) Is Sarah right when she says that she should do both cleaning and mowing while Mike should only mow lawns? Or may be Mike is right when he suggests that Sarah specializes in cleaning and he specializes in mowing? Illustrate and substantiate your answer with a numerical example.

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Definitions:

External

Pertaining to or situated on the outside of something; relating to the outer environment or surroundings.

Unstable

Lacking in stability, predictability, or consistency, often leading to unpredicted changes or outcomes.

Specific Factors

Elements or conditions that are distinct and contribute to a particular outcome or situation.

Prototype

The object that has the greatest number of attributes characteristic of the concept and that is therefore the most typical member of that concept.