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Let us assume two students must prepare a presentation for their economics class. As part of their class presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take James 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Jane 12 hours to do the series of the calculations and 20 hours to prepare the PPT slides. A. How much time would it take the two students to complete the project if they divide the two tasks equally?B. How much time would it take the two students to complete the project if they use comparative advantage and specialize in calculating or preparing slides? C. If Larry and Kate have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

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Answer:

A. How much time would it take the two students to complete the project if they divide the two tasks equally?

  • James needs 10 hours to complete half the task and Jane needs 16 hours to do her part = total work 26 hours

B. How much time would it take the two students to complete the project if they use comparative advantage and specialize in calculating or preparing slides?

  • If they specialize, then Jane should do the calculations (12 hours) and James should prepare the slides (10 hours) = total work 22 hours

C. If James and Jane have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

  • Yes, Jane should pay James so that he does the whole work all by himself. Since James opportunity cost is $5 per hour, his total economic cost of doing the work is $100, and half of that is $50. Jane's economic cost of doing her part is $60 (= 12 x $5), so if she pays any amount lower than $60 and equal or higher than $50 to James, then they would both win.

Explanation:

50 powerpoint slides

James needs 10 hours to do the calculations and 10 hours to prepare the slides = 20 hours total / 2 = 10 hours

Jane needs 12 hours to do the calculations and 20 hours to prepare the slides = 32 hours total / 2 = 16 hours

James's opportunity cost of doing the calculations or preparing the slides is 10 / 10 = 1

Jane's opportunity cost of doing one hour of calculations is 20 / 12 = 1.67 hours of preparing slides.

Jane's opportunity cost of doing one hour of preparing slides is 12 / 20 = 0.6 hours of calculations.

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