Using all of their resources, Company A can make either 100 computers or 50 cell phones while Company B can make either 200 computers or 150 cell phones. If both companies have the same quantity of resources, then has an absolute advantage in computers while has a comparative advantage in cell phones.

company B

company B

Explanation:

A company has comparative advantage in production if it produces at a lower opportunity cost when compared to other companies.

Opportunity cost of producing cell phones

company A = 100 / 50 = 2

company B = 200 / 150 = 1.3

The opportunity cost of company B is lower than that of company A. Company B has a comparative advantage in the production of cell phones

A company has absolute advantage in the production of a good or service if it produces more quantity of a good when compared to other countries

Company B produces 200 computers while company A produces 100 computer. Company B has an absolute advantage in the production of computers

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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