So country b has the comparative advantage right over here. It is calculated by finding the opportunity cost for a set of goods.
Considering opportunity costs can guide a firm to execute profitable decision making.
How to calculate opportunity cost comparative advantage. In belts we see that country a has the comparative advantage. Opportunity cost rm fo rm co opportunity cost fo co fo is the potential return on best foregone option co is the potential return on selected option. Suppose two neighboring countries produce two sets of similar goods.
We need to calculate the opportunity cost of 1 unit of iron ore from each country. Formula to calculate opportunity cost. And then in belts 1 2 of a car is less than 3 4 of a car.
So to find out the comparative advantage for those two goods we need to find out the opportunity cost for producing one good over the other good as the number of skilled labor is the same. In country a the opportunity cost is two belts while in country b it s only 1 1 3 belts. To calculate comparative advantage you have to calculate the opportunity cost of each good or service.
China s opportunity cost of 1 unit of iron ore. Calculate the opportunity cost of each good from each country. Comparative advantage in toy cars.