Milo and George are barbers. In one day, Milo can give 6 haircuts or give 8 shaves. In one day, George can give 5 haircuts or give 10 shaves.
a. What is Milo’s opportunity cost of one haircut? What is George’s opp. cost of one haircut?
b. Who has absolute advantage in giving haircuts and why?
c. Who has the comparative advantage in haircuts and why?
d. Draw Milo’s individual PPC and George’s individual PPC on the same graph. (Put haircuts per day on the horizontal axis and shaves per day on the vertical.)
e. What differences in Milo’s and George’s individual PPC’s result from your answer to b? What differences in their PPC’s result from your answer to c?
f. Now graph Milo and George’s combined PPC. What does this graph represent?
g. Suppose the demand for haircuts is fixed at 8 per day and the demand for shaves is fixed at 5 per day. Is it possible for Milo and George to fill this demand? To illustrate, plot this point on your graph from part e.