Firm A can produce 5 teddy bears an hour with 3 workers. Firm B can produce 5 teddy bears an hour with 4 workers. Firm C can produce 5 teddy bears an hour with 2 workers. Which firm has the absolute advantage in the production of teddy bears?

Question

a. Firm A
b. Firm B
c. Firm C
d. None of the above

Answer 1

To determine which firm has the absolute advantage in the production of teddy bears, we need to compare the number of teddy bears produced per worker per hour for each firm.

• Firm A: Produces 5 teddy bears with 3 workers.

  • Production per worker: \( \frac{5 \text{ teddy bears}}{3 \text{ workers}} \approx 1.67 \text{ teddy bears/worker} \)

• Firm B: Produces 5 teddy bears with 4 workers.

  • Production per worker: \( \frac{5 \text{ teddy bears}}{4 \text{ workers}} = 1.25 \text{ teddy bears/worker} \)

• Firm C: Produces 5 teddy bears with 2 workers.

  • Production per worker: \( \frac{5 \text{ teddy bears}}{2 \text{ workers}} = 2.5 \text{ teddy bears/worker} \)

Now we compare the production per worker for each firm:

• Firm A: \( \approx 1.67 \)
• Firm B: \( 1.25 \)
• Firm C: \( 2.5 \)

Firm C produces the most teddy bears per worker, which means it is the most efficient in terms of labor.

Therefore, the firm with the absolute advantage in the production of teddy bears is Firm C (option c).