Question Completion Status: each company specializes in their comparative advant

Question

Question Completion Status: each company specializes in their comparative advantage, how many total rides will be produced. Uber and Lyft Production of Car Rides and Scooter Rides 4000 Both companies have 1,000 hours of labor available to them.. 3000 Number of Scooter Rides 2000 car lyR 1000 2000 4000 6000 8000 Number of Car Rides O 6,000 scooter rides & 14,000 car rides O 2,000 scooter rides & 6,000 car rides O 2,000 scooter rides and 4,000 car rides O 4,000 scooter rides & 6,000 car rides

Explanation / Answer

Firstly, we will find the opportunity cost of both car ride and scooter rodes for both the companies and the company which has lower opportunity cost in the production of car ride will have the comparative advantage in the production of car ride and the company which has lower opportunity cost in the production of scooter ride will have comparative advantage in the production of scooter ride.

According to the Lyft' PPF:

- The opportunity cost of 6000 car rides is 2000 scooter rides

so the opportunity cost of 1 car ride is 2000/6000 scooter rides

opportunity cost of 1 car ride is 1/3 scooter rides.

- The opportunity cost of 2000 scooter rides is 6000 car rides

so the opportunity cost of 1 scooter ride is 6000/2000 car rides

opportunity cost of 1 scooter ride is 3 car rides.

According to Uber's PPF:

-The opportunity cost of 8000 car rides is 4000 scooter rides

so the opportunity cost of 1 car ride is 4000/8000 scooter rides

opportunity cost of 1 car ride is 1/2 scooter rides.

- The opportunity cost of 4000 scooter rides is 8000 car rides

so the opportunity cost of 1 scooter ride is 8000/4000 car rides

opportunity cost of 1 scooter ride is 2 car rides.

So according to this, the opportunity cost of car ride is lower in Lyft ( as 1/3< 1/2) and the opportunity cost of scooter ride is lower in Uber ( as 3>2). It means Uber will only produce scooter rides and Lyft will only produce car rides.

The total car rides will be 6000 and total scooter rides will be 4000.

Correct ans is d) 4000 scooter rides and 6000 car rides.

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