1. Running Head: SCHOLARLY ACTIVITY 1
Scholarly Activity
Terrance Wright
Columbia Southern University
2. SCHOLARLY ACTIVITY 2
Unit III Scholarly Activity
Part One
Maximum Output
Spain Portugal
Boats 3 2
Trucks 12 6
Table. 1
What can be concluded about Spain’s absolute and comparative advantage for both boats
and trucks?
Spain has an absolute advantage over Portugal in making both boats and trucks. It is in a
position to make more boats and trucks than Portugal which means that it can produce the goods
more efficiently. This could imply that Spain requires a smaller quantity of inputs to produce the
goods. Spain can produce 3 boats or 12 trucks. The opportunity cost for each boat is 12/3, or 4
trucks. The opportunity cost for each truck is 3/12, or 0.25 units of a boat.
Portugal on the other hand, can produce 2 boats or 6 trucks. The opportunity cost for each
boat is 6/2 or 3 trucks. The opportunity cost for each truck is 2/6 or 0.5 units of a boat. Since the
opportunity cost of Spain when it comes to the production of trucks is lower it has the
comparative advantage. Portugal has the comparative advantage when it comes to the production
of boats. Spain should opt to produce trucks because it has the comparative advantage while
Portugal should focus on the production of boats. Through international trade, both nations can
get the products at reasonable rates because they will both specialize in the production of one
item (Daniels et. al, 2015).
3. SCHOLARLY ACTIVITY 3
2. Referring to Table 2:
Maximum Output
Wines Tables
Italy 1000 200
Greece 200 100
Table 2
Who has absolute advantage in what good?
Italy has absolute advantage when it comes to the production of both wine and tables. It
can produce more wines and tables more efficiently than Greece.
Comparative Advantage?
In the case of Italy, the opportunity cost for a unit of wine is 200/1000 or 0.2 units of a
table. The opportunity cost for a table is 1000/200 or 5 units of wine. On the other hand, In the
case of Greece the opportunity cost for wine is 100/200 which is 0.5 units of a table whereas the
opportunity cost for tables is 200/100 or 2 units of wine. Italy has a comparative advantage when
it comes to the production of wine whereas Greece has a comparative advantage when it comes
to the production of tables. This is because the opportunity cost for both the products is lower
(“What is the Difference,” n.d.).
Part 2
Opportunity Cost
4. SCHOLARLY ACTIVITY 4
Opportunity cost can simply be defined as the cost of an alternative that has to be forgone
in a bid to pursue a particular action. Opportunity cost can also be described as the cost of a
missed opportunity. Every resource which includes money, time and land among others can be
put to different uses. As a result, every decision, choice and action has an associated opportunity
cost (“What is an Opportunity Cost,” n.d.).
Opportunity cost is an economics concept. They are important costs in economics which
are used to compute the cost benefit analysis of a project (“What is an Opportunity Cost,” n.d.).
However, the costs are not recorded in account books but they are recognized in decision
making. This is achieved by computing cash outlays and the resulting profit or loss.
When it comes to applying it to a business decision, it refers to the profit that a firm could
have acquired from its capital, real estate and equipment if all these assets would have been used
in different ways. The concept can be applied to a variety of situations. Some small business
owners take into account opportunity cost when they are making decisions regarding which two
possible actions to take. They factor in the opportunity cost when computing operating expenses
in a bid to provide an estimate or bid on the price of a job.
The opportunity cost should be focused on in circumstances where scarcity forces picking
one option as opposed to another. Scarcity of resources makes trade-offs necessary. The trade-
offs are the ones that lead to opportunity cost.
It is usually defined in monetary terms but it can also be considered in terms of time,
mechanical output, person-hours or any other resource that is exhaustible. For example, a
gardener may decide to grow tomatoes over potatoes. The opportunity cost of the farmer is the
alternative crop that could have been grown instead.
5. SCHOLARLY ACTIVITY 5
In this case, a choice between two options must be made. This refers to either growing
tomatoes or potatoes. There is a level of risk involved, however, the gardener could achieve
greater benefits with the chosen option. The opportunity cost is pegged on the amount of money
that the gardener would have made by growing potatoes over tomatoes.
Work and Studies
The opportunity cost in this scenario is the accumulative amount of the annual tuition and
the amount of money that would have been earned in that year. The total amount is $5,000 plus
$25,000 which accumulates to $30,000. The difference in income after graduating is $10,000
because the new salary will be $40,000. This means that in approximately 3 years the added or
extra income earned will cover the opportunity cost which was forgone. Quitting the job to
continue studying is a wise decision because the benefit will be greater.
After 3 years the amount will have been recovered meaning that after those years more
income which translates to $10,000 annually will be acquired. This would not have been the case
if the alternative option of going back to school would not have been chosen. Graduating will
also bring more benefits to the table. This is in terms of more expertise and it will also raise the
chances of being promoted. This is another aspect that makes the decision to go back to school
worth it.
6. SCHOLARLY ACTIVITY 6
References
Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2015). International business: Environments and
operations (15th ed.). Upper Saddle River, NJ: Pearson Education.
What is an opportunity cost? definition and meaning. (n.d.). Retrieved June 21, 2015, from
http://www.businessdictionary.com/definition/opportunity-cost.html
What is the difference between comparative advantage and absolute advantage? (n.d.). Retrieved
June 21, 2015, from http://www.investopedia.com/ask/answers/033115/what-difference-
between-comparative-advantage-and-absolute-advantage.asp