To determine which company has the comparative advantage in producing car parts, we need to compare the opportunity cost of producing one car part in terms of bike parts for each company. The opportunity cost is essentially what you forego in terms of bike parts for every car part produced. We will calculate the opportunity cost for each company and then identify the company with the lowest opportunity cost.
1. Opportunity Cost Calculation:
- Company A:
- Produces 10 car parts per hour and 20 bike parts per hour.
- Opportunity cost of one car part = [tex]\(\frac{20 \text{ bike parts}}{10 \text{ car parts}} = 2.0\)[/tex]
- Company B:
- Produces 10 car parts per hour and 25 bike parts per hour.
- Opportunity cost of one car part = [tex]\(\frac{25 \text{ bike parts}}{10 \text{ car parts}} = 2.5\)[/tex]
- Company C:
- Produces 15 car parts per hour and 15 bike parts per hour.
- Opportunity cost of one car part = [tex]\(\frac{15 \text{ bike parts}}{15 \text{ car parts}} = 1.0\)[/tex]
- Company D:
- Produces 20 car parts per hour and 25 bike parts per hour.
- Opportunity cost of one car part = [tex]\(\frac{25 \text{ bike parts}}{20 \text{ car parts}} = 1.25\)[/tex]
2. Comparative Advantage:
- The company with the comparative advantage in producing car parts is the one with the lowest opportunity cost.
3. Results:
- Opportunity costs:
- Company A: 2.0
- Company B: 2.5
- Company C: 1.0
- Company D: 1.25
- The lowest opportunity cost is 1.0, which belongs to Company C.
Therefore, Company C has the comparative advantage in manufacturing car parts.
