Author Question: A monopsony is A) a market in which there is only one producer of a good or service. B) a market ... (Read 47 times)

berenicecastro · **on:** Jun 29, 2018

A monopsony is

A) a market in which there is only one producer of a good or service.
B) a market in which there is only one producer and one consumer of a good or service.
C) a market in which there is only one buyer of a good or service.
D) a temporary situation in labor markets when prices are adjusted through the use of collective bargaining.

Question 2

Mary takes 4 minutes to make a sandwich and 6 minutes to mix a cocktail. Her sister Ash takes 4 minutes to make a sandwich and 4 minutes to mix a cocktail. Calculate each sister's opportunity cost.

Which of the two sisters has an absolute advantage in making sandwiches? In mixing cocktails? Which of the two has a comparative advantage in making sandwiches? In mixing cocktails?

scrocafella · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

Mary can spend an hour to make 15 sandwiches or mix 10 cocktails, which means 1 sandwich costs her 10 cocktails 15 sandwiches = 0.67 of a cocktail per sandwich while 1 cocktail costs her 15 sandwiches 10 cocktails = 1.5 sandwiches per cocktail. Ash can spend an hour to make 15 sandwiches or mix 15 cocktails, which means 1 sandwich costs her 15 cocktails 15 sandwiches = 1 cocktail per sandwich and 1 cocktail costs 1 sandwich per cocktail. The sisters are equally productive in sandwiches (15 sandwiches per hour) and therefore neither of them has an absolute advantage in sandwiches. But Ash has an absolute advantage in cocktails. She can mix 15 cocktails per hour while Mary can only mix 10. To see the sisters' comparative advantage we compare their opportunity costs. Mary's opportunity cost of a sandwich (0.67 of a cocktail per sandwich) is lower than Ash's (1 cocktail per sandwich), so Mary has a comparative advantage in sandwiches. Ash's opportunity cost of a cocktail (1 sandwich per cocktail) is lower than Mary's (1.5 sandwiches per cocktail), so Ash has a comparative advantage in cocktails.