Question

2 3-column tables with 2 rows are shown. Both tables have a first column with entries Sam, K C. For the first table, the second column is labeled Tax Returns Processed per day with entries 3, 7. The third column is labeled Sales Calls made per day with entries 30, 28. For the second table, the second column is labeled Opportunity Cost per tax return with entries 10 sales calls, 4 sales calls. The third column is labeled Opportunity Cost per Sales Call with entries 0.1 tax returns, 0.25 tax returns.
Which of the following statements is a valid economic conclusion based on this information?

Sam and KC should each spend about half their time on tax returns and sales calls.
It would be best for Sam to work only on making sales calls.
KC’s time would be best spent on sales calls.
Sam’s time would be best spent on tax returns.

Answer 1

"It would be best for Sam to work only on making sales calls."

Reason: Sam's opportunity cost of a tax return is 10 sales calls (higher than KC's 4), while Sam's opportunity cost of a sales call is 0.1 tax returns (lower than KC's 0.25). Thus Sam has the comparative advantage in sales calls and should specialize there; KC should specialize in tax returns.