Emily owns an ice cream parlor. in an hour she can produce 40 milkshakes or 40 ice cream sundaes. ben also owns an ice cream parlor. in an hour he can produce 20 milkshakes or 10 ice cream sundaes. emily's opportunity cost of producing 1 milkshake is ben's opportunity cost of producing 1 milkshake is

Emily's opportunity cost of producing 1 milkshake is 1 ice cream sundae.

Ben's opportunity cost of producing 1 milkshake is 0.5 ice cream sundae.

Explanation:

Both Emily and Ben own an ice cream parlor.

In an hour Emily can produce 40 milkshakes or 40 ice cream sundaes.

Emily's opportunity cost of producing a milkshake is

=

=

= 1 ice cream sundae

In an hour Ben can produce 20 milkshakes or 10 ice cream sundaes.

Ben's opportunity cost of producing a milkshake is

=

=

= 0.5 ice cream sundae

We see that Ben has a lower opportunity cost of producing milkshake, so we can say that he has a comparative advantage in producing milkshake.

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