Absolute Advantage

One way to answer the question aboul the cost of producing potatoes is to compare the inputs required by the two producers. Economists use the term absolute advantage when comparing the productivity of one person, firm, or nation to that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.

In our example, time is the only input, so we can determine absolute advantage by looking at how much lime each type of production takes. The rancher has an absolute advantage both in producing meal and in producing potatoes because she requires less lime than the farmer to produce a unil of either good. The rancher needs to input only 2(1 minutes to produce an ounce of meat, whereas the farmer needs CO minutes. Similarly, the rancher needs only 10 minutes to produce an ounce of potatoes, whereas the farmer needs 15 minutes. Based on this information, we can conclude that the rancher has the lower cosl of producing potatoes, if we measure cost by the quantity of inputs.

opportunity cost whatever must be given up to obtain some item

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