Question

You and a friend have decided to work jointly on a course project. Frankly, your friend is a less-thanideal partner. His skills as a researcher are such that he can review and outline only two articles a day. Moreover, his hunt- and-peck style limits him to only 10 pages of typing a day. On the other hand, in a day you can produce six outlines or type 20 pages. a. Who has an absolute advantage in outlining, you or your friend? What about typing? b. Who has a comparative advantage in outlining? In typing? c. According to the principle of comparative advantage, who should specialize in which task?

Short answer

You hold the absolute advantage in both outlining and typing. However, in terms of comparative advantage, you hold the advantage in outlining and your friend holds the advantage in typing. According to the principle of comparative advantage, you should specialize in outlining and your friend should specialize in typing.

Step-by-step solution

Determine Absolute Advantage

Analyzing the given information, your friend can outline 2 articles and type 10 pages a day whilst you can outline 6 articles and type 20 pages a day. Therefore, you have an absolute advantage in both outlining and typing because you can accomplish more of each task in a day.

Calculate Comparative Advantage

To calculate the comparative advantage, we must understand that the opportunity cost of doing something is what must be given up to do that thing. For your friend, to outline one article, the opportunity cost is giving up the ability to type 5 pages (because he can only do 2 outlines or 10 pages a day). For you, to outline one article, you must give up the ability to type 3.33 pages (because you can do 6 outlines or 20 pages a day). Thus, you have the comparative advantage in outlining. Similar calculations show that the friend has the comparative advantage in typing because he only gives up doing .2 outlines to type a page, while for you, this would cost .3 outlines.

Determine Task Specialization

According to the principle of comparative advantage, you should specialize in the task where you have the comparative advantage and your friend should do the same. Therefore, you should specialize in outlining and your friend should specialize in typing.

Key concepts

Absolute Advantage

To understand who holds the absolute advantage in a task, we assess who can produce more output using the same amount of resources, such as time. In simple terms, it means the ability to accomplish more in less time or with less effort. In the project scenario described, both you and your friend are working on two main tasks: outlining articles and typing pages.

Here's how absolute advantage plays out here:

• Your friend can outline 2 articles and type 10 pages a day.
• You can outline 6 articles and type 20 pages a day.

This indicates you have the absolute advantage in both tasks because you can outline and type more than your friend in the same amount of time.

Having an absolute advantage is often about efficiency and managing resources wisely. However, it's not always the most crucial factor when deciding who should do what, especially in collaborative work.

Opportunity Cost

Opportunity cost is a crucial concept that helps in understanding the benefits missed when choosing one alternative over another. Whenever you make a choice, there is a cost linked to what you did not choose. If you opt to outline, the opportunity cost is the work in typing that you could have completed instead, and vice versa.

• For your friend, outlining one article means missing out on the ability to type 5 pages (since he can handle 2 outlines or 10 pages daily).
• For you, outlining one article comes at the cost of typing about 3.33 pages (as you can accomplish 6 outlines or 20 pages in a day).

Hence, you have a lower opportunity cost for outlining, which gives you a comparative advantage in that task. Conversely, your friend incurs fewer losses when switching from outlining to typing, hence has a comparative advantage there. Opportunity cost helps in recognizing trade-offs and making more informed, strategic choices.

Task Specialization

Task specialization leverages the insights from both absolute and comparative advantages. The principle of comparative advantage suggests that each person should focus on the task they can perform at the lowest opportunity cost, enhancing productivity and efficiency in the collaboration. Let's see how it applies in the outlined example.

• You should specialize in outlining since you have a comparative advantage here due to your lower opportunity cost in terms of pages not typed.
• Your friend should focus on typing, where his opportunity cost is lower compared to yours for not outlining articles.

By specializing, both of you can maximize the overall output and efficiency. Each partner's contribution to the task where they perform better ensures the project progresses smoothly, emphasizing the importance of synergistic team dynamics.